• Nedbank has secured JSE approval for two senior unsecured notes scheduled for issue on 16 October

  • Floating coupons link payments to overnight rates following South Africa’s September increase to 7.25%

  • Expanding lending and regulatory funding requirements place greater weight on funding costs and maturity management

Harare – Nedbank Limited has secured approval to list R75 million in senior unsecured notes on the Johannesburg Stock Exchange on 16 October 2026, adding funding maturing in December 2031 through its Structured Note Programme, according to a latest circular. The South African banking subsidiary of Nedbank Group will issue the instruments at their full nominal value, with interest initially linked to the South African Rand Overnight Index Average, known as ZARONIA.

The issuance extends contractual funding maturity across an uncertain interest-rate cycle. Nedbank’s expanding loan book requires liabilities that support lending over time, with the financial return depending on the interest earned from assets, the cost of funding them and the credit losses incurred during repayment.

The R25 million instrument will pay compounded daily ZARONIA plus 2.65 percentage points until maturity on 20 December 2031. The R50 million instrument carries ZARONIA plus 2.30 percentage points until 20 December 2029, followed by a fixed annual rate of 5.83% for the remaining two years. Both initially pay interest quarterly.

ZARONIA measures the cost of unsecured overnight rand funding obtained by commercial banks, using actual transactions. Compounding the daily benchmark passes changes in overnight funding conditions into the notes’ coupon calculations. Nedbank’s payments will consequently adjust as the benchmark moves during their floating-rate periods.

South Africa’s monetary-policy environment has become more restrictive. The South African Reserve Bank increased its policy rate by 25 basis points to 7.25%, effective 25 September, following renewed inflation pressure associated with fuel prices and global supply disruptions. Its September assessment projected inflation above 5% later in 2026 and early in 2027, returning towards 3% near the end of 2027.

The central bank’s model anticipates eventual interest-rate reductions as inflation subsides. Persistent energy-price pressure, higher inflation expectations and tighter global financial conditions could prolong elevated borrowing costs. Nedbank’s floating coupons leave the contractual interest bill responsive to that adjustment.

A sustained one-percentage-point increase in the applicable benchmark would add approximately R750,000 to annual coupon payments across R75 million of principal during the period when both instruments remain floating. That illustration assumes unchanged principal and excludes detailed compounding effects, fees and any hedging arrangements. The same benchmark decline would reduce contractual payments by approximately that amount.

The fixed-rate phase beginning in December 2029 gives the R50 million instrument a predetermined coupon for its final two years. Assessing its contribution to Nedbank’s effective funding cost requires the full pricing supplement and any associated derivatives. Banks manage interest-rate exposure across portfolios, and an individual note’s coupon provides only part of the economics.

Nedbank Group’s balance sheet establishes the wider funding context. Loans and advances reached R1.082 trillion at June 2026, increasing 9% year on year. Amounts owed to depositors rose 10% to R1.353 trillion, and net interest income increased approximately 4% to R22.02 billion.

Loan growth requires continuing funding across mortgages, corporate facilities, vehicle finance and other credit products. Deposits provide a substantial part of that funding, with market instruments contributing additional sources and maturities. Longer contractual funding can reduce the frequency with which a bank needs to replace particular liabilities during the life of its assets.

The R75 million issuance represents approximately 0.11% of the R69.65 billion reported outstanding under the Structured Note Programme after issuance. The programme’s authorised ceiling is R120 billion. Those figures place the transaction within an established issuance platform, with the ceiling defining permitted programme capacity and the outstanding balance recording instruments already in issue.

Nedbank’s June liquidity disclosures showed a liquidity coverage ratio of 126.5% and a net stable funding ratio of 119%, exceeding their respective 100% regulatory minimums. The first assesses liquid resources against stressed short-term net cash outflows. The second evaluates the availability of stable funding relative to the requirements of the asset base.

Maintaining those buffers carries a financial cost. Liquid assets, term funding and customer deposits have different returns, prices and maturity characteristics. Treasury management must preserve sufficient liquidity and funding stability as commercial teams originate additional lending.

S&P Global Ratings’ September assessment identified movement within that funding position. Broad liquid assets covered short-term wholesale funding approximately 2.7 times at June, declining from 3.7 times at December 2025. Regulatory liquidity measures remained above minimum requirements, and the change increases the relevance of monitoring funding composition as assets expand.

Nedbank also faces a substantial regulatory funding programme. S&P reported R5.7 billion of first loss after capital instruments issued during the first half of 2026 and cited an estimated requirement of R45 billion to R55 billion over six years. These instruments, commonly called FLAC, provide resources that can absorb losses and support recapitalisation during bank resolution.

The latest notice classifies the R75 million instruments as senior unsecured notes. Their eligibility towards FLAC requirements has not been established. The broader regulatory programme creates an additional demand on funding markets, with issuance timing, investor appetite and pricing influencing the cost of compliance.

Higher interest rates affect earnings through several channels. Repricing loans can generate additional interest receipts, and depositors and wholesale investors also seek higher returns. Borrowers face larger repayment obligations, increasing the importance of affordability assessments, collections and credit provisioning.

Nedbank Group’s credit loss ratio increased to 95 basis points in the first half of 2026 from 81 basis points a year earlier. Headline earnings were broadly unchanged at R8.4 billion. Funding decisions therefore sit alongside credit performance in determining the return retained from balance-sheet growth.

South Africa’s benchmark transition adds operational requirements. Nedbank’s guidance identifies 31 December 2026 as JIBAR’s final publication date, requiring affected contracts and systems to accommodate ZARONIA. Interest calculations, payment forecasting, documentation and hedging arrangements all form part of that transition.

The new issuance adds funding with a December 2031 maturity and an initial cost tied to overnight market conditions. Nedbank’s subsequent disclosures on deposit pricing, interest margins, credit losses and liquidity will establish the earnings outcome as lending expands. Profitable growth requires sufficient income from those assets to cover funding, operating costs, expected losses and the capital committed to the business.

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