The Sunday Mail
The country’s biggest financial services group, CBZ Holdings Limited, has added its voice to concerns that banks are not doing enough in lending to the productive sector at a time economic revival has gathered pace.
Banks have for a while now come under fire over their failure to extend loans to the productive sector in general and the agricultural sector in particular.
In fact, loans and advances across the sector have been coming off to below benchmark levels of at least a loan to deposit ratio of 70 percent.
Just last week, while addressing the 6th Annual National Agribusiness Conference held concurrently with the Harare Agricultural Show, President Mnangagwa challenged the banking sector to support the country’s economic revival by extending loans to farmers at affordable interest rates.
His call comes at a time the average loan to deposit ratio for most banks is below 50 percent, with agriculture getting very small allocations.
As reported by this paper last week, local financial institutions have not been extending much funding to the agricultural sector, thereby forcing the sector to resort to funding from merchants and Government initiatives such as Command Agriculture.
For the six months to June 30, 2018, FBC Bank Limited only extended 5 percent or US$16,6 million of its loans to the agricultural sector.
Barclays extended 22 percent or US$32,9 million to the sector while ZB Financial Holdings only advanced 10 percent or US$13 million.
However, senior officials at CBZ said as much as the bank would want to support the agricultural sector, and having given out loans worth US$176, 9 million, there was also need to protect shareholders’ capital given that the bulk of non-performing loans are coming from the same sector.
Market watchers, however, argue that it is the cost of borrowing that becomes a burden to farmers, resulting in loan defaults, something that was also pointed out by President Mnangagwa.
“May you make your financial service sector accessible and favourable to the current environment to make our economy grow, not introduce policies and practices that stifle that growth as a result of a desire to make maximum profits.”
President Mnangagwa said he is not seeking to push banks into making losses, but reasonable profit.
Bankers, however, believe there has to be a balance between the two competing interest with farmers on one hand and shareholders on the other.
Responding to questions at the Group’s results presentation, CBZ Holdings’ chief executive officer, Mr Blessing Mudavanhu said while the bank is making all efforts to fund the productive sector, there is still need to focus on underwriting good quality loans.
“While it is important that we maintain a healthy level of advances, it is important that we protect the shareholders’ capital. We really need a balancing act with these two competing interests,” said Mr Mudavanhu, adding that the bulk of non-performing loans are from the agricultural sector.
President Mnangagwa also spoke to this, encouraging beneficiaries of agro-finance schemes to honour their repayment obligations, adding that the prevalence of non-performing loans must be a thing of the past in the Second Republic.
Mr Mudavanhu said while CBZ will strive to put forward a strategy that enables it to grow loans and advances, there is need to balance with shareholder capital.
Chief finance officer Mr Collin Chimutsa said despite the challenges brought about by the operating environment, including late rains, the bank had played a major role in funding agriculture.
The period under review saw loans to the agricultural sector come down to US$176, 9 million or 19 percent of total from US$248,0 million or 24 percent of total loans and advances prior year comparative.
This is at a time the bank’s investment in Government related bonds increased to US$201,0 million, a significant jump from US$45,8 million that was reported prior year comparative.
Significant increase was also recorded in the RBZ Savings bond where US $108,0 million was invested.
This asset class was not there in the comparable prior year.
The banking Group also had US$ 995 million invested in Treasury Bills, up from an investment of US$882,5 million in the first six months of 2017.
Government has been issuing some of the TBs to fund the agricultural sector through programmes such Command Agriculture.
Management defended continued investment in Government paper, saying risk is minimal with very low chances that the issuer will default.
Mr Mudavanhu argued that TBs are being issued by those who supervise and regulate banks, so there are low chances of default as it is in Government’s best interest not to destabilise financial markets.
“TBs are issued by a Government, which also regulates us, therefore there is zero risk. If you respect the banking licence, you have to respect a paper issued by the same Government,” said Mr Mudavanhu.
Meanwhile, the banking group reported an excellent set of results for the half year ended June 30, 2018.
Profit after taxation amounted to US$34,3 million, up 188 percent from US$11,9 million achieved prior year comparative
Earnings per share jumped 190,57 percent to US 13,25 cents from US 4,56 cents.
The Board has declared an interim dividend of US$2 589 740 or US 0,50 cents per share. This declaration translates to a growth of 46,9 percent on the comparative 2017 interim dividend.
Management said performance was driven by a reduction in the cost of funding, decrease in the loan book (read interest income) and growth in non-interest income which now contributes 51,2 percent up from 48 percent.