• Significant Profit Decline: 56% decrease in after-tax profit
• Despite overall declines, net interest income rose by 20%, and net income from lending activities increased by 45%
• The group is focused on organizational transformation, including digital upgrades

Harare- ZB Financial Holdings has reported a challenging half-year ended 30 June 2024, marked by significant declines in its financial performance.

The group recorded a 59% drop in after-tax profit (PAT), falling to ZiG1.10 billion from ZiG2.7 billion in the previous year highlighting the difficulties faced by the company in a volatile economic environment.

“The first half of 2024 was marked by significant economic challenges, including high inflation, weakening local currency and severe drought conditions.

“Erratic energy supply, drought brought on by El Niño, strict monetary and fiscal policies intended to stabilize the newly launched Zimbabwe Gold (ZWG) currency, as well as external economic forces, all decreased economic performance,” said the group’s chairperson Agnes Makamure in a statement accompanying the financials.

The decline in profitability was largely driven by reduced earnings across various segments, particularly a staggering 95% decrease in fair value adjustments, which plummeted from ZWG1.855 billion in 2023 to ZWG95.6 million in 2024.

“Income performance continued to be mainly underpinned by fair value adjustments.”

Fair value adjustments refer to the changes in the value of assets and liabilities that a company holds, based on their current market value rather than their historical cost. In ZB's case, the dramatic 95% decrease in fair value adjustments from ZWG1.855 billion in 2023 to ZWG95.6 million in 2024 contributed to the overall decline in profitability.

While fair value adjustments can reflect real fluctuations in market conditions, they are often viewed as less stable compared to core earnings from traditional banking activities, such as interest income and fees.

Therefore, while they can indicate a bank's exposure to market volatility, they do not necessarily represent real growth. A bank's sustainable growth is typically derived from consistent performance in its core lending and deposit-taking functions rather than reliance on fair value changes.

Income performance was also affected by a 27% decrease in other operating income, which fell from ZWG1.255 billion in 2023 to ZWG913.94 million in 2024.

However, a notable highlight was the 28% increase in commissions and fees, which rose from ZWG275.324 million in 2023 to ZWG353.007 million in 2024, indicating that certain areas of the business remained robust.

One of the most significant areas of growth for ZB was in net interest income, which rose by 20%, from ZWG174.948 million in 2023 to ZWG209.977 million in 2024. This increase was bolstered by a 75% decrease in net expected credit losses, which fell from ZWG36.235 million in 2023 to ZWG9.206 million in 2024.

The reduction in credit losses suggests effective management of lending risks and a focus on recovering outstanding debts, leading to a 45% increase in net income from lending activities, which rose from ZWG138.695 million in 2023 to ZWG200.771 million in 2024.

The insurance sector showed mixed results during this period. ZB Reinsurance reported a net loss after tax of ZWG52.861 million in 2024, a significant improvement from the loss of ZWG146.206 million in 2023.

On the other hand, ZB Life Assurance saw its profit decrease to ZWG333.579 million in 2024 from ZWG632.489 million in 2023, reflecting challenges in managing claims and operational costs.

The slight improvement in the insurance service result, which narrowed its deficit from ZWG236.737 million in 2023 to ZWG228.568 million in 2024, can be attributed to ongoing efforts to manage claims more effectively.

Operating costs for the group increased by 7%, from ZWG618.704 million in 2023 to ZWG663.944 million in 2024.

This rise primarily reflects broader inflationary pressures affecting the economy, which have resulted in higher costs for goods and services across the board.

Consequently, profit from ordinary activities dropped by 61%, from ZWG1.556 billion in 2023 to ZWG611.639 million in 2024.

The group's performance was also adversely impacted by a dramatic 96% drop in the profit share from associate companies, falling from ZWG79.966 million in 2023 to ZWG3.417 million in 2024.

The group’s organizational transformation program is nearing completion, with a new customer-centric business model that emphasizes digital transformation and innovation. The transition of bank branches into customer service centers is well underway, aimed at providing a comprehensive range of services to clients.

Equity Axis News