The banking market was ‘less attractive’ in the first quarter of 2008 compared with the same period last year, listed banking group Nedbank said on Wednesday.

The bank was presenting its first quarter 2008 trading update.

It said that the impact of increased interest rates, electricity outages and fuel and food price inflation, combined with the effects of the global economic slowdown, had contributed to the banking sector's challenges.

The results for the first quarter were broadly in line with expectations for headline earnings, Nedbank said.

Underlying growth in assets and net interest income remained solid, but impairment levels had now risen above the group’s through-the-cycle expectations.

Charges continued to increase

"Nedbank Corporate recorded good earnings growth. Earnings in both Nedbank Retail and Imperial Bank slowed as impairment charges continued to increase," the group said.

Nedbank Capital experienced a slowdown in certain business lines and, as expected, lower private-equity earnings.

NII grew by 21.9 percent to R3.871-million from R3.176-million previously.

However, the bank warned that the environment was, however, becoming "increasingly challenging".

Pressure on clients’ income

"The further interest rate rise in April, together with the effects of electricity outages and the continued increases in the cost of basic commodities, including fuel and food, will increase pressure on clients’ disposable income, which will further compound levels of credit stress, particularly in the retail advances portfolios."

Nedbank said that further interest rate increases - should they occur - would add to consumer and business credit stress. The bank said these pressures on the economy, together with heightened market volatility, had "increased forecast risk".

However, Nedbank still expected to see positive earnings growth for the first half of 2008, but growth was "expected to be at lower levels than originally anticipated".

Sapa