Repositioning strategy turns Nedbank Retail around

The turnaround follows a detailed strategic review, which revealed weaknesses in the transactional banking franchise, owing to underinvestment and poor strategic choices in relation to clients, distribution and marketing and a predominantly product-focused approach. This, coupled with inadequate risk management disciplines, led to Retail reporting a loss in 2009.

Ingrid Johnson, group managing executive, retail and business banking, who has been leading the repositioning over the past four years explains.

"Given our country's demographics, we recognised the importance of being a bank for all South Africans, including focusing on the growth markets of youth and entry level banking and restoring our historic strengths in the middle market, seniors and small business segments. We believed that a client-centred approach, underpinned by world-class risk management practices, would afford us the opportunity to provide positive first experiences with the bank on which to build deep enduring client relationships that embrace key 'moments of truth' through their life stages."

At the time, Johnson identified three fundamental imperatives to give effect to this aspirational vision, whilst also sustainably restoring profitability. These were rebuilding the client franchise as a bank for all, embedding effective risk management and culture, and evolving the organisation from being primarily product focused to being more client-centred and integrated.

She also assembled a highly skilled, experienced and values-based leadership team, aligned the accountabilities and enhanced collaboration across retail and business banking to lead the delivery of this new strategic path. Consistency in both strategic intent and implementation were also vital elements to ensuring success.

"The progress achieved over the past four years across a multiplicity of initiatives is powerful and required careful orchestration and decisive leadership, particularly against the background of 40-year low interest rates, low GDP growth, increasing consumer indebtedness and fierce competition."

Rebuilding the client franchise as a bank for all

Based on deep insights of customer needs, relevant customer offerings have been developed for each segment. Enhanced with rich, innovative product features, these offerings are competitively and transparently priced and positioned in the market with brand ambassadors such as Eugene Khoza and Zahara whom customers can identify with.

The youth and entry level banking segments, where it was under-represented for many years, represent 75% of the two million new clients gained and the balance of the growth in the very competitive middle market and seniors segments. This is a good increase in the number of clients banking with Nedbank, now at 6.2 million individuals and small businesses.

The division has leveraged the strengths of business banking to invest significantly in the small business sector and joint initiatives, such as Small Business Friday, the Small Business Index and Business Accelerator, have succeeded in raising awareness and support for small businesses, which are key to employment creation and economic growth.

"This strong client growth momentum and deepening of product cross-sell has translated into a cumulative R2.8 billion of additional non-interest-revenue at a 15.8% compound annual growth over three years to December 2012', says Johnson.

The R1.3 billion investment in the retail network has increased branches by 40% and ATMs by 70% in four years. More investments of over R1.6 billion are planned to roll out the innovative new 'Branch of the Future' formats across its network, ideally touching 75% of its clients within three years. This, coupled with improved digital and mobile channels, is making it much more accessible for all customers. Accelerated innovation resulted in a number of new solutions being launched over the period, including the Approve-it internet security feature, the PocketPOS mobile card acceptance device and the MyFinancialLife personal financial management tool, many of which are unique in the market and contribute to the distinctiveness of its overall value proposition.

"Through the combination of these efforts, our brand is increasingly resonating with our target markets, which in turn is increasing client loyalty and the depth of their banking relationships. From no presence on social media in 2011, it is now also actively dialoguing with its clients and this is reflecting in positive sentiment towards our brand. A recent external comprehensive brand survey valued the Nedbank brand at R11 billion, a 20% increase over the year."

Embedding effective risk management

Bad debts are the most volatile driver of banking industry earnings and excellent risk management is critically important to protect against this downside risk. The home loans business, which was a big contributor to the 2009 losses, has been reinvented by creating a compelling alternative to mortgage originators and restoring it as the primary client interface, while embedding the right risk management disciplines. The digital home loans Apply Online channel is the first in market to give approval within hours and contributes 10% of intake. So far, it has processed over 10 000 applications, granted loans worth R1.5 billion, registered 1548 properties and reduced 300 000 pages of paper by going digital.

Similarly, given concerning personal loans industry dynamics, the bank was proactive since early 2012 as a first mover fundamentally to redesign the business and reduce risk appetite, resulting in a slowing of advances growth well ahead of the market. By applying more stringent affordability criteria and selective advances origination, it sought to improve clients' financial fitness and protect clients from over indebtedness, while also improving the underlying asset quality of the portfolio. This is in readiness for the anticipated next cycle of consumer credit stress particularly if interest rates increase, given that personal loans are an early indicator of such future stress.

"We also used the past four years wisely to reduce overall retail banking defaulted loans proactively by 34% to R12.4 billion, while increasing balance sheet impairments by R2.3 billion, including R1.1 billion related to impairment methodology changes, to build added protection for any rise in future bad debts, as our concerns regarding the credit health of the consumer elevate."

Evolving the organisation to be more client-centred and integrated

In streamlining the organisation to give effect to the strategic intent, including the integration of Imperial Bank, over 3000 people were directly affected and redeployed into meaningful roles without retrenchments. Notwithstanding substantial organisational change, the culture and staff satisfaction measures improved materially over this period to world-class levels.

In addition, cost optimisation initiatives have resulted in savings of R775 million in the three and a half years to June 2013, creating capacity for additional investment into marketing, distribution and innovation.

"A key enabler to unlocking the accelerated change was to share our vision and strategy widely with 17 000 staff over four months in early 2012. Our people are demonstrating deep commitment and a will for retail to succeed on its chosen new path and this process unleashed the enthusiasm, alignment and understanding of the role that each person could play as they bring this vision to life in their daily interactions with our clients."

Ready to weather next risk cycle

Looking forward, she believes the business is far better placed to weather the downside of the next consumer risk cycle and has strong foundations off which to grow, with many of the client metrics accelerating. However, rebuilding the client franchise will take time, as perceptions built over an extended period need to be reframed in the eyes of the consumer.

"We are aware that we are midway through a large-scale organisational transformation. This requires consistency and strength in leadership and strategic direction to embed the early gains. At the same time, it is imperative to evolve our strategic choices in the context of our overall position and to the key trends shaping the banking industry.

"Leveraging our strong foundations and remaining true to our commitment of building sustainable businesses and increasing our source of distinctiveness relative to peers, the skilled banking team is committed to continue delivering sustainable earnings growth momentum at improved ROEs. We will continue to contribute meaningfully to the group achieving its medium-to-long-term targets while making a difference to the society we serve," concludes Johnson.