Competition Commission Enquiry into Banking Nedbanks perspective November 2006

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Competition Commission Enquiry into
BankingNedbanks perspectiveNovember 2006
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Nedbank presentation overview

• Why an enquiry?
• What is the enquiry about?
• Nedbanks approach to the enquiry
• The Nedbank story

Background

• What is the National Payment System (NPS) and how
  does it work?
• Do all players have sufficient access to the NPS
  to compete?
• Is there a need for banks to cooperate in the
  NPS?
• Is there enough competition in SA banking?
• Are SA banks making too much money?
• What is Nedbanks perspective on its Retail fees?

Our key questions
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1. Why an enquiry?
Competition Commission Enquiry into Banking
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2. What is the enquiry about?
Competition Commission Terms of Reference
The subject matter of the enquiry is (a) the
level and structure of charges made by banks, as
well as by other providers of payment
services, including (i) the relation between
the costs of providing retail banking and/or
payment services and the charges for such
services (ii) the process by which charges are
set and (iii) the level and scope of existing
and potential competition in this regard (b)
the feasibility of improving access by non-banks
and would-be banks to the national payment
system infrastructure, so that they can compete
more effectively in providing payment
services to consumers (c) any other aspect
relating to the payment system or the
above-mentioned charges which could be
regarded as anti-competitive.
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3. Nedbank's approach to the enquiry
We welcome the enquiry and support public debate
on these issues
We all need to be transparent to get to the right
outcomes
We are supporting open and proactive engagement
with the Commission and the public
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3. The Nedbank story
Share price
2001
2006
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The Nedbank Group has needed to transform in
manyaspects

• To
• Gaining customers
• Acceptable performance
• Client focused model
• Improved staff morale
• Bank for all
• Transformation
• Focused branding
• Outward focus

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We have reorganised for success
Client interface
Nedbank Corporate Graham Dempster
Nedbank Capital Brian Kennedy
Nedbank Retail Rob Shuter
Imperial Bank (50,1) René van Wyk
Nedbank Group Chief Executive Tom
Boardman Number of clients
3,3m Headline earnings R3 176m Total
advances R248 408m Total Assets
R352 258m Employees
22 188
Support areas
Group Finance Mike Brown
Group Human Resources Shirley Zinn
Group Technology Support Services Len de
Villiers
Group Strategy and Corporate Affairs Nombulelo
Moholi
Group Risk Philip Wessels
Chief Executives Office Derek Muller
Enterprise Governance Compliance Selby Baqwa
Source Annual Report 2005
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Nedbanks Retail operations have also been
through profound change
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Nedbank Retail has been organised to focus on the
customer
Nedbank Retail
High Net Worth (BOE)
Mass Market Customers
Middle Market Customers
Affluent (Nedbank Private)
Branch
Call Centre
ATM/SST
Virtual
Other
Small Business Services
Home Loans
Card
Personal Loans
Banc-assurance and Wealth
Transac-tional and vehicle finance
Go Banking
OMB
Retail Shared Services
Retail Marketing
Retail Risk
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We are now ready to look outwards

• Successful launch of new branding
• Service levels improving
• Breakthrough in product pricing
• Exciting new products launched
• Investing R1 bn expanding distribution
  footprint

Clear outward focus
Building for long-term growth
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In our view there are 6 key questions we need to
answer
Terms of Reference
Key questions
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1. What is the National Payment System
The NPS is not owned by anyone. It is a virtual
network.
The NPS facilitates the exchange of payments to
the value of R148 billion per day, making it a
critical network in the SA economy.
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and how does it work?
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The NPS and interoperability achieving card
acceptance by merchants
Competition
Competition
Service provider / Merchant
Clients
Payment for goods
Customer fee
Merchant fee
Interchange
Issuer
Acquirer
Cooperation
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The NPS and interoperability - drawing cash from
any banks ATM
Competition
Clients
SASWITCH ATM
Withdrawal of cash
Customer fee
Interchange
Acquirer
Issuer
Cooperation
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2. Do all players have sufficient access to the
NPS to compete?
Access
Risk Credit Operational Liquidity Systemic Legal

Clearing banks
PCH systems operator
Users
Payment Service Provider
Regulation
Current regulation provides access in different
forms, depending on the nature and impact of the
services offered. Nedbank supports access by any
player to the NPS provided the integrity of the
NPS is not jeopardised.
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3. Is there a need for banks to cooperate in the
NPS?
Companies
Merchant
Clients

• Banks cooperate to
• Manage the risks within the NPS
• Provide interoperability
• Avoid duplication of infrastructure

Acquiring bank
Issuing bank
PCH systems operator
SA Reserve Bank
The NPS is stable, robust and world class.
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Nedbanks perspective on the NPS

• Cooperation is necessary
• The regulatory approach has worked to date
• Nedbank supports the view that access needs to
  be regulated to
• maintain the integrity of the NPS
• NPS costs are a small component of the overall
  costs of processing
• payments
• We welcome competition, provided the integrity
  of the NPS
• is maintained

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4. Is there sufficient competition in SA banking?
How does Nedbank compete?
Source Nedbank, 2005
Our research shows that clients choose banks for
many reasons
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We need to continuously find ways to look
different and better than our competitors so
clients choose us over them
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We listen and develop new products and services
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Nedbanks perspective on the level of competition
in SA banking
Nedbanks experience is that the SA banking
industry is very competitive. Our actions in the
market since 2005 reinforce our position that
this is a competitive market in which significant
effort is required to be successful.
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5. Are SA banks making too much money?
Source Nedbank Economics Unit
Profits in the local banking industry are highly
cyclical and dependent on the overall business
cycle.
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Exceptionally robust economic conditions
outweighed the impact of increased competition on
bank ROEs
ROEs
Time
Economic conditions
Increasing competition
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Comparison to countries with a similar risk
profile
Source The Banker report, Top 1000 Global
Banks 2002-2005
Growth in profits of SA banks are in line with
those of other developing countries with similar
risk profiles and at the same time not out of
line with profits of developed countries with
much lower risk profiles.
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Comparison to local industries
Earnings growth
Source Nedbank Economic Unit and Inet
Earnings growth in the banking industry is not
out of line with those other sectors listed the
JSE.
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Market ratings
Source Nedbank Economic Unit and Inet
The market has consistently underrated the
overall banking industry relative to other
sectors because of high perceived risks to
earnings outlook of banks.
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Bank income Margin vs. Fees
NII Margin
NIR to total revenue
Source Nedbank Bloomberg analysis
Banks have had to cut costs and rely more heavily
on fee income as margins have compressed through
economic and competitive pressures. This offers
an opportunity for greater transparency and
understanding of bank fees by clients as margins
are an abstract concept, whilst fees are easier
to compare and understand.
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Nedbank's perspective on the profit levels of SA
banks
SA banks have generated strong profits more
recently, but this has been the result of
exceptionally favourable economic conditions
during the past two years, which have resulted in
stronger than normal earnings growth in most
sectors of the economy and this specific set of
circumstances is extremely unlikely to be
repeated in near future.
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6. What is Nedbanks perspective on its Retail
fees?

• We identified the need for change in our retail
  bank fees
• Being relevant in SA market
• Extend access to banking
• Make it affordable
• Giving clients great value for money

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How Nedbank looks at fees
Economic Value
Costs
Fees
Nature of the product
Customer Value
Multiple factors are considered when setting fees.
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The market perception is that fees are high
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We ask clients for their views
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And strive to give clients value for money
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We have reduced our current account fees by 13.1
across the board
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Our new products demonstrate this commitment
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Nedbank's perspective on its retail bank fees
Nedbank is committed to playing its part in
making banking more affordable to all South
Africans. Our actions are demonstrating this
commitment.
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Wrapping up
Key questions we had to answer
Our perspective
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Wrapping up
Key questions we had to answer
Our perspective
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Nedbank understands the importance of making
commitments. We commit to Making banking
more affordable for all South Africans
Delivering great products with world class
service Playing our part in building a better
future for all
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