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UPDATE 2-S.Africa's Nedbank decides against dividend as profits slump

* Profits at upper end of forecast range

* Bank sets new medium-term targets

* Expects more than 20% rise in interim profits in 2021

* Shares fall more than 1% (Adds CEO comments, shares, details)

JOHANNESBURG, March 17 (Reuters) - South Africa’s Nedbank said on Wednesday it was not paying a dividend for 2020, when its annual profit plunged 56.8%.

Two rival South African lenders have restored dividends after the central bank eased guidance against the payouts, but Nedbank was among those banks seen as less likely to do so due to its weaker capital position.

Nedbank’s share had slipped 0.8% by 0725 GMT.

Chief Executive Mike Brown said the bank held off paying a dividend to retain capital for growth opportunities and account for uncertainty around the pandemic recovery. It said it expected to resume payouts in the first half of 2021.

“It’s not that (capital) is lost to shareholders,” he told Reuters, adding the bank could return excess funds to investors at a later stage if its growth was not as strong as expected.

Growth opportunities included the potential for Nedbank to unlock more value from its stake in Togo-based lender Ecobank, and in particular its operations in West Africa, he said.

Nedbank’s 21% stake in its West African associate has historically dragged on profits, and in 2020 the bank impaired its investment by 750 million rand.

But the biggest blow for all banks’ headline earnings per share (HEPS) - the main profit measure in South Africa - was a huge spike in bad debt charges, combined with lower revenues as interest rates and fee income fell during the pandemic.

Nedbank’s HEPS dropped 56.8% to 1,126 cents ($0.7565) in the year to Dec. 31, at the upper end of its forecast range and compared with 2,605 cents a year earlier.

The bank set new medium-term targets, after withdrawing its earlier targets last year due to the coronavirus crisis. It now aims to exceed 2019 levels of HEPS and return on equity - a key measure of bank profitability - and reduce its cost-to-income ratio to below 54% by 2023.

HEPS for the first six months of 2021 would likely increase by more than 20% on the 438 cents it reported in the first half last year, Nedbank said.

$1=14.8846 rand Reporting by Emma Rumney; Editing by Devika Syamnath and Edmund Blair

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