Bruce Whitfield:
A couple of nice SMSes on cellphone banking and Pieter says, how secure is cellphone banking, does it have an http equivalent? Well Pieter the cellphone banking technology has advanced hugely and why don’t we ask Mike Brown, the chief financial officer at Nedbank.

I know Mike that you are not a technical person, you are a financial person, but you have introduced cellphone banking at Nedbank as well and the security of all banking channels of course is always under discussion and cellphone banking, are you confident that it is as secure as at least internet banking is, if not more so?

Mike Brown:
So far we have been very comfortable with the security we have got in place on our cellphone banking. We have obviously built in what we think is the required level of security so we are very happy with that.

Bruce Whitfield:
And provided you don't lose your cellphone and I suppose what is important with cellphone banking as well is that the data is not stored on the cellphone itself.

Mike Brown:
That’s right.

Bruce Whitfield:
Absolutely. So Pieter hopefully that answers your question.

Welcome Mike, it is quarterly results from you today and this is a new phenomenon within Nedbank. Why are you going to be reporting quarterly in future?

Mike Brown:
That’s right, essentially our holding company Old Mutual who owns just over 50 percent of our shares is now listed on the Swedish stock exchange post the acquisition of Scandia and that requires them to quarterly report and as a consequence we are also required to quarterly report.

Bruce Whitfield:
And this is going to make your life a lot more interesting no doubt as well having to do this every single quarter because banks are fairly complex beasts and for you to do this every quarter is going to be quite challenging I would assume.

Mike Brown:
That’s right, you know generally we have the information available anyway so it is just all the packaging and presentation that will take up a little bit more of my time.

Bruce Whitfield:
Looking at some of the key performance indicators you published today. Your return on equity up to 18.6 percent, you are targeting 20 percent at the end of the year and your cost to income ratio improving as well but both targets could be under threat as I see from your results today because of those big capital expenditure plans which you announced, I think last time you reported, that R1-billion over the next three years to get the ATMs up to scratch and to get more branches and hire more staff.

Mike Brown:
Yes, I think just to correct you, the target that we have got being the 20 percent ROE and 55 percent cost to income are 2007 targets and not the end of this year. We think we have made pretty good progress on the ROE front moving up to 18.6 percent for this nine months, so we are quietly confident that we are going to achieve the 20 percent target.

What we have always said about the 55 percent is that it is a tough target, prize A for us is certainly to meet that target whilst at the same time building out our retail distribution franchise and cutting our retail pricing like we have just done but that certainly does make it more difficult.

Bruce Whitfield:
It is challenging but your jaws ratio is where you want to see your revenues growing more quickly than your expenses and the wider the gap is between those two the better and that gap now nearly 15 percent which is quite an impressive one.

Mike Brown:
That’s right, you know we think that that gap is probably unsustainable at the level of 15 percent but jaws is a good ratio.

Bruce Whitfield:
Jaws is a good ratio.

Mike Brown:
Good name too.

Bruce Whitfield:
Absolutely, as long as you can blunt those teeth a little bit. Staff costs up nearly 12 percent in the quarter, primarily new staff because you have got the smallest retail banking network in the country and you have had to bolster that quite significantly.

Mike Brown:
Yes, it is a combination effectively of a year-on-year increase in overall staff remuneration of just over six percent plus some head count increase, mostly as you say in the front line of our retail business, to help us with our customer service.

Bruce Whitfield:
How is that billion rand capital expenditure plan going? Have you rolled out new branches, have you begun that process?

Mike Brown:
It is pretty early days on that at the moment so we certainly are in the initial stages of that but that spend between now and 2008 to 2009.

Bruce Whitfield:
And the fastest growth though still very much in the corporate banking market as well. I mean very impressive growth in corporate, nice growth in retail, and Nedbank Retail is now bigger than Nedbank Capital.

Mike Brown:
From an overall headline earnings perspective we were very pleased with the growth in Nedbank Retail, 64 percent odd up in its headline earnings, and its ROE moving up to 26 percent, now much more in line with the peer group.

Bruce Whitfield:
What about the bad debt picture, we are hearing from the furniture retailers that they don't seem to be too concerned about bad debt. Your bad debt actually dropped a bit.

Mike Brown:
Yes we came in with a credit loss ratio of 50 basis points, which was down on the 61 basis points we reported in June, bearing in mind that the numbers to June did contain some impairment charges in Nedbank Capital that were not repeated.

Generally we have seen an uptick in the bad debt environment particularly in retail following the interest rate increases but it is nothing that is outside of our expectations and nothing that is outside of what is priced into our product.

Bruce Whitfield:
You are stuck in quite a difficult position in a rising interest rate environment, you have been losing market share across quite a view product segments in the last couple of years and on the one hand you have got to grow your market share and on the other you don't want to be extending credit recklessly, and I am not suggesting for a moment you would, but you don't want to be extending credit more quickly than you should and there is the pressure of the market here as well.

Mike Brown:
Yes absolutely, I think we would rather lose market share than have bad loans on our books, there is no doubt about that. We have been pretty pleased with what has happened in the market share space over the last couple of months, the most sort of prominent area of discussion has been our home loans market share.

We have spent an awful lot of time fixing processes and turnaround times in home loans and we got that growth rate up to just over 27 percent for the nine months on an annualised basis. So we are really pleased with the progress we have made there.

Bruce Whitfield:
Mike Brown thanks for talking to us this evening, the chief financial officer at Nedbank.