Zimbabwean banks continue to prosper while economy struggles

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Banks in Zimbabwe that have released their trading updates have announced impressive performance despite a negative operating environment.

CBZ, Barclays, NMB, ZB and Agribank, the only banks that have released their trading updates during their annual general meetings have all registered big increases in revenues and profits, while the national economy continues to struggle. These banks constitute a combined share of around 36% of banks assets, 40% loans and around 38% in terms deposits. Their performances, although early, gives an indication of where the sector is headed. CBZ, the country’s largest bank by all measures registered a 12.2% growth in after tax profit in the first quarter to $5.5 million from $4.9 million realized in the same period last year. The bank also achieved encouraging growth in deposits, loans and all line items of the balance sheet. Against a growth in the balance sheet and profitability CBZ believes it is preserving and growing shareholder value despite the difficult environment. Transactions volumes surged by 181% while the value of transactions went up by 19.6% when compared to same period last year. Between December and March 2017 the number of bank accounts grew by 5% to 386,588 and its e-channels continue growing. This is an encouraging performance and if maintained may result in a superior out-turn against the prior year.

Barclays Zimbabwe also registered a very strong performance in the first four months of the year characterized by strong growth income, all balance sheet items and operating profit. The bank which is in the process of being acquired by Malawi’s FMB enjoyed a surge in fees and commission income whilst interest income took a knock due to reduced corporate lending. According to Barclays, the current foreign currency shortages have seen corporates who used to borrow to finance offshore requirements take a step back. As such, the bank’s loans to deposit ratio has fallen to as low as 33%.

NMB, although taking an 8% knock in income in the first four months of the year expects half year performance to be better than the previous year. NMB is banking on improved performance after a successful rationalization exercise to drive strong performance into the half year. Its deposits and total assets went up, which is a positive for the bank that has also acquired syndicated lines of credit for its exporting clients. Transactional volumes also increased phenomenally on all of its e-channels driving its non-funded income line. The bank is focusing on cost effective ways to deliver its products to its clients in light of the adverse operating environment.

ZB enjoyed a strong growth in interest income, driving its performance for the first 4 months of the year up when compared to the same period last year. Total income came in at $24.13 million which was 24% ahead the previous comparable period while operating expenses were stable at $16.2 million. However, total assets eased by 7% to $406.8 million as non interest earning assets dipped. ZBFH says there are loans that have been approved but not yet disbursed and these have been affected by external factors such as cash crisis and forex shortages.

Agribank also recorded a positive and encouraging performance despite net interest income coming short of target. The shortfall was attributed to a dearth in interest rates following a directive by the central bank that banks should lower interest rates to a cap of 12% from a circa industry average of 18% . Non-Interest Income recorded a positive variance of 15% in the 5 months period to$7.4 million against a budgeted target of $6.5 million which is an encouraging progress. The growth in non-funded income was spurred by e-channel business steam rolled by the migration to a cash-lite society in light of the cash liquidity crisis. Transactional volumes have thus spiked in turn increasing the values generated from the income line.
Indications are that the sector will continue to outperform the economy. Economic challenges such as the cash crisis brought new opportunities for the sector. However, limited quality borrowing clients will continue to derail performance in a lending rate controlled environment and banks should focus on diversifying their income lines.

Kaduwo is an Economist at Equity Axis. Contact tinashek@equityaxis.net/kaduwot@gmail.com

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