Pervasive low credit quality of borrowers on the local market has seen one of the country’s biggest diversified financial services group, ZB Financial Holdings, turn to Government related investment securities for the optimisation of returns, chief executive officer Mr Ronald Mutandagayi said last week.
Speaking at the Group’s result presentation for the half year ended June 30, 2018, Mr Mutandagayi said investment securities had increased by 59 percent to $58 million as ZB Holdings optimised on short-term opportunities amid low uptake of loans and advances.
“Pervasive low credit quality on the market has had negative effects on loan uptake whilst mortgage facilities have struggled to find favour with property sellers.
“Adverse macro factors affected expansion of the loan book and general facility utilization averaged 55 percent during the period under review,” said Mr Mutandagayi.
Lending retreated by three percent to US$124,53 million with significant reduction in the manufacturing and private sectors.
Loans and other advances recorded a seven percent decline to $97,98 million with loans to the manufacturing sector decreasing by 12 percent to US$17,86 million while loans to private individuals were four percent lower at US$27,86 million. The reduction in lending levels resulted in gross interest income recording a one percent decline to US$13,19 million.
The challenging operating environment saw ZB Financial Holdings turn to Government related financial instruments for better returns.
Total investment securities and money market investments increased by 31 percent as the bank exploited available short term opportunities. Parastatal Bonds and RBZ Savings Bonds were utilised for the optimisation of returns in the short term pending the creation of longer term assets, said Mr Mutandagayi.
Investments in Parastatal Bonds amounted to US$22,5 million, up 188 percent from investments of US$7,80 million at the end of the 2017 financial year. There was also appetite for RBZ Savings Bonds with the financial institution investing US$15,40 million in the instrument, which pays a seven percent interest rate per annum. Last year, the central bank issued a seven percent Savings Bond, which the monetary authority said was meant to provide investors with a platform to save and invest in high yielding instruments. Banks and corporates are, however, also warming up to the instrument that had mopped $1 billion as at end of June 2018.
The bulk of the investments were, however, made in Treasury Bills with more than $187, 1 million having been invested, up 20 percent from the investments of $155,9 million prior year comparative. The bulk of the TBs were bought from the secondary market. Mr Mutandagayi said coupons on primary market acquisitions ranged between seven percent and 10 percent whilst discounts on secondary market trades ranged between 4 percent and 14 percent. Meanwhile, ZBHF reported a plausible set of results for the period under review with Mr Mutandagayi saying performance was spurred by an increase in the number of accounts and transaction volumes.
The Group’s net profit amounted to US$9,4 million for the period, a 15 percent increase from US$8,2 million recorded prior year comparative. Earnings per share was up 16 percent to 0,058 cents. Total income for the Group was up 12 percent to $38,6 million for the half year from $34,5 million achieved prior year comparative, but earnings from traditional channels have been sliding down, Mr Mutandagayi said.
The bulk of the income came from non-funded income with a contribution of 72 percent with the balance of 28 percent coming from net interest income. Other income, which makes up the bulk of non-funded income, was up 14 percent to $22,9 million from $20,1 million.
According to Mr Mutandagayi, other income was largely driven by a 14 percent increase in banking customers as well as a general increase in the number of transactions, particularly through the electronic banking channels.
Net income from lending activities amounted to $10,9 million in 2018, up 39 percent from $7,9 million in 2017, as interest paying liabilities re-priced faster than assets in an environment in which rates fell down.
While interest and related income was static at $13,1 million, interest expenses were reduced to $2,9 million from $4,2 million prior year comparative. Net revenues from the Group’s insurance activities remained flat at $4,9 million, with gross premiums having increased by 6 percent to $16,5 million for the period under review up from $15,5 million prior year.
Earning assets were maintained at 77 percent between 31 December 2017 and 30 June 2018.
Funding improved, supported by deposit expansion and organic growth in capital. Deposits and related accounts increased by 13 percent to $391,5 million from $347,1 million at 31 December, 2017.
Mr Mutandagayi said the increase in funding was across all sources, driven by earnings growth and business generation.
Fixed deposits contribution reduced to 33 percent at 30 June 2018, compared to 36 percent at 31 December 2017, reflecting funding sustainability in the short to medium term. Looking ahead, Mr Mutandagayi said plans are to grow revenue from current and new business lines such as Diaspora and international business as well as trade and project finance.
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