CBZ to be moderately profitable beyond 2019: Analysts

Enacy Mapakame

Zimbabwe’s largest banking group by assets and deposits, CBZ Holdings, made after-tax profits of $137 million — a 300 percent jump  in the six months to 30 June, but analysts expect the banking group to become only moderately profitable beyond 2019.

That is because much of the profit in the half-year was based on revaluations of property and investments following the conversion of bank balances to the Zimbabwe dollar from foreign currency earlier this year.

The Reserve Bank of Zimbabwe, this year, introduced currency reforms such as floating of the exchange rate as well as abolishment of the multi-currency basket.

Fair value adjustments added $158 million to non-interest income, helping offset $42 million in unrealised losses from foreign currency fluctuations.

But, relative stability in the rate of foreign exchange, which has see-sawed between $10 and $15 to the US dollar in recent months, means that such gains will likely disappear going into the future — and with it the astronomical increases in profit growth.

IH Securities have now forecast CBZ Holdings’ net interest income to grow only 17,4 percent to $96 million for the year to December 31 2019, up from $82 million a year ago. The stockbrokers cited the risk of rising bad loans and a slowdown in borrowing appetite as the key drawbacks for income growth.

“It is our view that in full-year 2020 earnings will be depressed as revaluations normalise and the elevated levels experienced in 2019 are not replicated, IH Securities detailed in a research note on the financial institution.

It added that, “in the subsequent years, we anticipate moderate growth at sustainable levels.”

For the current year, net income is guided to surge more than 560 percent to $483 million, before nosediving to $213 million the year after — a decline of 55 percent. Similar declines are expected across the main revenue lines except net interest income, which is seen climbing 21 percent to $116 million in 2020.

Total group lending is forecast to slow down to a growth of just 12 percent next year, from an increase of 74 percent in 2019. “If the current economic dynamics persist,” IH Securities opined, “it is our view . . . that CBZ will need to re-assess risk and its lending capacity, which is likely to exert liquidity pressures and thus constrain lending.”

IH commented in light of the central bank’s impending deadline on minimum core capital requirements for commercial banks, set at $200 million. CBZ Holdings said it was well positioned to meet the requirements by the December 2020 deadline.

However, IH Securities expects the threshold to be raised due to runaway inflation, which peaked at 175 percent during the review period. All this, including a spike in accommodation rates, could impact bank lending badly, it warned.

On the Zimbabwe Stock Exchange, CBZ Holdings shares are guided to be at 62 cents over the next 52 weeks. Year-to-date, the stock price has soared more than 317 percent, rising much quicker than the main Industrial Index. After close on Thursday, CBZ was at 66 cents.