ZB results: Subdued lending a major worry

Kudzanai Sharara
Assistant Business Editor
Strong growth and increased contribution from non-funded income saw ZB Financial Holdings report a 12 percent growth in total income net of loan impairment charges, to US$72,7 million for the year ended December 31, 2017, up from US$65 million prior year comparative.
The results however, reflect a worrying trend as the group has the bulk of its loan book invested in Treasury Bills (TBs) at US$155,95 million, which is more than the US$104,9 million which was given out as loans to individuals and the productive sector.

Funds invested in TBs grew by 31 percent from US$118,6 million as the banking group bought TBs worth US$105,69 million from the secondary market.

This comes at a time the loan to deposit ratio came down to 30 percent from 36 percent despite deposits growing by 26 percent to US$347 million.

The bulk of the non-funded income of US$41,5 million came from banking commissions, fees and other income. Fees and Commissions were up 9 percent to US$37,8 million.

In total, non-interest income is now contributing 80 percent of income, up from a contribution of 73 percent prior year comparative.

Private individuals are also getting the bulk of the loans at US$45,9 million although there was an increase in loans to the services sector which got US$24,3 million from US$16,8 million prior year comparative.

Chief executive officer Ron Mutandagayi said the cost of funds was driving banks away from wholesale funding and also towards TBs.

“The move from wholesale funding was strategic as term deposits are expensive.

“It’s an issue of cost, term funds are expensive and will be difficult to deploy into the productive sector. That’s why we are invested in treasury bills where we have more appetite. We are quite happy to increase that,” said Mr Mutandagayi.

He however, said overall performance, where non-funded income dominated was driven by increased usage of the group’s electronic banking platforms.

The group also got dividend amounting to US$3,8 million, from underlying assets in portfolio, up 455 percent from what it got prior year comparative.

“Investment returns increased significantly as underlying assets in portfolio paid dividends and experienced appreciation in value in line with movements on the ZSE,” said Mr Mutandagayi.

Fair value adjustments weighed in with US$2,7 million from US$239 813, with Mr Mutandagayi saying the performance was on the back of the rally experienced on the Zimbabwe Stock Exchange in 2017.

The ZSE closed with a 130 percent gain in 2017.

Profit after tax amounted to US$15,5 million, up 36 percent from US$11,43 million prior year after income increased at a faster rate than the increase in costs.

Earnings per share were up 45 percent 9,15 cents from 6,32 cents prior year. In line with the Group’s dividends policy, the Board declared a final dividend of 1,83 cents per share for the year ended 31 December 2017.

Despite the strong performance from non-funded income, net earnings from lending and trading activities reduced by 15 percent to US$14,8 million from US$17,5 million following a net impairment charge of US$3 million against a net credit of US$0,8 million in the previous year.

However, the net interest and related income improved by 6 percent from US$16,7 million to US$17,8 million.

Total earning assets went up by 20 percent to US$367,7 million from US$306,8 million with the group having invested US$155 million in treasury bills up 31 percent from prior year’s US$118,6 million.

Loans and other advances went up by 6 percent to US$104,9 million with the bulk going to individuals.

Mr Mutandagayi said TBs purchased from primary market are earning coupon interest rates between 9-10 percent whilst secondary market trades have earned discount rates above 10 percent per annum.

The gross loan book increased by 12 percent to close the year at US$128,3 million from US$115,1 million prior year comparative, while deposits and other accounts increased by 26 percent to US$347,11 million with the bulk coming from individuals and services as the bank moved away from wholesale funding.

The non-performing loans (NPL) ratio improved to 11 percent in FY16 form 23 percent in FY17 with Mr Mutandagayi saying the reduction was on the back of the group’s aggressive collection strategy as well as the sale of some loans to ZAMCO.

The group got TBs worth US$3,2 million, bringing the cumulative rescue package to US$23,5 million in respect of NPLs.

Total expenditure was up by only 3 percent to US$50,5 million after operating expenses increased due to higher acquisition costs in banking and insurance operations, advertising and brand promotion expenses.

Mr Mutandagayi said the rate of income growth was higher than that of operating expenses, creating a base for performance sustainability.

“This is despite a 10 percent reduction in gross income interest which was offset by a 35 percent reduction in the related interest expense as the funding book, being transient in nature, re-priced faster than the asset book during a period in which rates were adjusting downward,” said ZBFH.

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