• Zanaco's operating income rose 13% to K3.30 billion, but profit declined 1% to K868 million
• Government securities increased 45%, outpacing 9% loan growth as the bank expanded its balance sheet
• CBZ Holdings recorded a sharper 20% profit contraction despite growing deposits and advances

Harare – Zambia National Commercial Bank (Zanaco) has recorded a 13% increase in operating income to K3.30 billion (approximately US$183.2 million) for the six months ended 30 June 2026, but the improvement failed to translate into higher profitability as operating expenses increased 20%, absorbing the benefits of stronger treasury earnings and digital transaction income.

Profit after tax ultimately slipped 1% to K867.8 million (US$48.3 million), reflecting the rising cost of operating and expanding one of Zambia's largest commercial banking franchises.

According to the latest unaudited half-year financial results to FY 2026, Zanaco generated K367 million in additional operating income compared with the corresponding period last year, supported by growth in non-funded revenue and a modest improvement in net interest income. However, operating expenses rose by K295 million, limiting the contribution of additional revenue to the bottom line.

The results present a profitability challenge increasingly evident across regional banking markets: expanding customer activity and assets does not guarantee stronger shareholder returns when operating expenses, regulatory costs and credit-related risks grow at a comparable or faster pace.

In Zimbabwe, CBZ Holdings experienced a sharper earnings contraction during the same reporting period, with profit after tax declining 20.3% to ZWG691.6 million, despite growth in lending and deposits. Although the two institutions operate under different monetary and regulatory conditions, their performances reveal a common pressure on earnings conversion.

Zanaco's non-funded income increased 55%, equivalent to K232 million, providing the principal source of revenue growth during the period. Treasury income contributed K174 million of the increase, reflecting a 43% improvement, while other recoveries added K55 million.

Net fees and commissions advanced 24%, or K56 million, supported by higher transaction volumes across digital banking channels. Net interest income, meanwhile, increased by a comparatively modest 3%, despite improved asset yields and growth in the lending portfolio.

The composition of revenue growth is important. Treasury earnings and recoveries can support profitability, but they are not necessarily as predictable as recurring loan interest or established transaction fees. The K55 million contribution from recoveries also requires distinction from income generated through ongoing customer activity.

The Bank attributed the increase in operating expenditure to investments in personnel, technology and marketing intended to strengthen customer acquisition, deposit mobilisation and transaction volumes. The introduction of Zambia's deposit insurance scheme added approximately K85 million in expenses, representing nearly 29% of the total K295 million increase.

Based on the reported changes, operating expenses rose from approximately K1.48 billion to K1.77 billion (US$98.4 million). The resulting cost-to-income ratio increased from about 50.4% to 53.7%, calculated using the operating income and expenditure figures disclosed in the results.

That deterioration illustrates the difference between expanding revenue and improving operating leverage. Additional investments may support future scale, but their immediate effect is to weaken efficiency unless customer acquisition and transaction growth generate sufficient recurring income to offset the higher cost base.

Zanaco's profit before tax consequently declined from K1.31 billion to K1.30 billion, while earnings per share eased from K0.605 to K0.601. The relatively contained decline suggests that the franchise remains profitable, although its incremental revenue is being absorbed by an expanding operating cost structure.

Meanwhile, Zanaco's balance sheet expanded 6.8% to K54.48 billion (approximately US$3.03 billion), from K50.99 billion in June 2025, supported principally by higher investment securities and customer lending.

Investment securities increased 44.5% to K15.70 billion (US$872.8 million), representing approximately 28.8% of total assets. Customer loans and advances grew 9% to K19.72 billion (US$1.10 billion), equivalent to 36.2% of assets.

The disparity indicates that securities accounted for a larger share of balance-sheet expansion than new customer credit. Government securities increased by approximately K4.84 billion, while loans grew by K1.63 billion.

This positioning can support earnings and liquidity management, particularly when sovereign instruments offer attractive yields relative to the risk-adjusted returns on commercial lending. However, a growing concentration in government securities also increases sensitivity to sovereign funding conditions, interest-rate changes and the valuation of fixed-income instruments.

Customer deposits rose 5.4% to K40.27 billion (US$2.24 billion), leaving loans equivalent to approximately 49% of customer deposits. That ratio indicates substantial funding coverage relative to the outstanding lending portfolio, although it is not, by itself, a measure of regulatory liquidity.

Zanaco also maintained a reported capital adequacy ratio of 25.47%, providing capacity to absorb risks and support future asset growth. Its equity increased 23.3% to K6.98 billion (US$388.3 million), despite K704 million in dividends paid during the period.

Yet the cash-flow statement introduces a separate consideration. Net cash used in operating activities reached K4.34 billion, compared with a K3.25 billion inflow in the corresponding period of 2025. Cash and cash equivalents ended the period at K3.59 billion, substantially below K7.03 billion a year earlier.

The movement must be interpreted alongside changes in banking assets and liabilities, rather than treated as a conventional industrial company's operating cash deficit. Nevertheless, it reinforces the importance of monitoring the relationship between liquidity deployment, securities accumulation and deposit growth.

How Zanaco Compares With CBZ

CBZ Holdings reported total income of ZWG2.86 billion (approximately US$106.8 million at the June closing rate) for the first half of 2026, largely unchanged from ZWG2.85 billion a year earlier. Its profit after tax declined 20.3% to ZWG691.6 million (US$25.8 million), a considerably sharper contraction than Zanaco's 1% decline.

CBZ's operating expenditure increased 24.1% to ZWG1.97 billion, while expected credit losses rose from ZWG26.7 million to ZWG165.7 million. These pressures reduced operating profitability even as the group continued to expand its balance sheet.

Loans and advances increased 16.5% from December 2025 to ZWG11.87 billion (US$443.5 million), while deposits rose 16% to ZWG32.20 billion (US$1.20 billion). Total assets expanded 12.3% to ZWG46.21 billion (US$1.73 billion).

The comparison reveals different forms of earnings pressure. Zanaco's profit stagnation was principally linked to operating cost growth despite substantial revenue expansion, while CBZ faced a combination of higher expenditure and increased credit impairment charges against relatively flat income.

Zanaco also maintains a larger balance sheet and loan portfolio while CBZ Holdings operates as a diversified financial services group.

A more revealing distinction lies in operating efficiency. Using total income and operating expenditure, CBZ's simple expense-to-income ratio reached approximately 68.8%, compared with Zanaco's 53.7%. These are calculated indicators rather than fully standardised banking cost-to-income ratios, but they suggest that Zanaco retains a more favourable operating cost position despite the deterioration recorded during the period.

Zanaco's expansion in digital channels, customer acquisition and treasury operations provides opportunities to improve earnings, but the bank must demonstrate that recent investments generate recurring revenue at a faster rate than the costs associated with maintaining them.

Digital transaction growth is particularly important because additional volume can improve fee income without requiring a proportional increase in physical branch infrastructure. Its financial contribution, however, depends on transaction pricing, system costs and customer adoption.

The bank's securities exposure also requires continued balance-sheet discipline. A larger government securities portfolio can strengthen income generation, but sustained profitability would benefit from balancing sovereign investments with appropriately priced private-sector lending and diversified fee-based services.

The Bank  has indicated that artificial intelligence, advanced analytics and further digital transformation will form part of its operating strategy. The commercial test will be measurable improvements in productivity, credit underwriting, customer retention and operating efficiency rather than technology expenditure alone.

Zanaco enters the second half of 2026 with substantial capital headroom, growing deposits and a profitable banking franchise. Its challenge is no longer simply generating additional revenue, but improving the proportion that translates into earnings.

The regional comparison with CBZ reinforces the broader lesson. Asset growth and stronger transaction activity can coexist with declining profits when expenditure and risk costs expand too quickly. For Zanaco, restoring operating leverage while maintaining prudent credit and sovereign exposure will determine how effectively its expanding balance sheet creates shareholder value.

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