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Prosper Ndlovu, Business Editor
THE performance of the banking sector in Zimbabwe continues to defy the odds despite persistent negative macro-economic indicators.
For the period ended December 31, 2015 most banks in the country posted impressive results with some clocking above 200 percent profit margins.
FBC Holdings Limited tops the log of performers with a 270 percent growth in profits to $18,1 million in 2015 from $4,9 million in 2014.
The group attributed the growth to a diversified business model, which saw it divest from building material manufacturer Turnall Holdings.
During the period NMBZ Holdings garnered an after tax profit of $5,4 million, an increase of 229 percent on the previous year’s after tax profit of $1,6 million. The group’s profit before tax was $7,9 million, compared to $2,4 million the previous year while its total assets grew by 17 percent from $286 million in 2014 to $333 million as at December 31, 2015.
Pan-African financial institution, Ecobank Zimbabwe, trailed closer with a 112 percent growth in pre-tax profit and after tax profit hitting $7,3 million up from $3,4 million in the corresponding period in 2014.
Zimbabwe’s largest mortgage lender, Central Africa Building Society (CABS)’ asset base breached a $1 billion mark after recording a 22 percent growth from $852 million with deposits also growing 27 percent. The bank also recorded an 18 percent growth in net surplus to $28 million, up from $24 million registered in the previous comparable period.
Its net interest income increased by 36 percent to $59,9 million from 43 million recorded for the same period in 2014.
Similarly, CBZ Holdings reported a seven percent increase in after-tax profit to $35,2 million in the full year to December 2015. The group’s total assets grew 18 percent to $1,974 billion, while total income, minus interest expense, was $184 million, a 19 percent improvement on the prior year.
CBZ’s insurance business weighed in with net underwriting income of $12,5 million last year, up from $8 million in 2014.
Not to be outdone, Stanbic Bank Zimbabwe posted a 15 percent increase in profit to $23.9 million for the year ended December 31, 2015, up from $ 20,7 million in 2014.
Bank officials say the surge in profit was driven by net interest income, which at $42,8 million, grew by 11 percent from 2014 on the back of the additional short term investments and lending assets, which were written during the year.
Even troubled entities like Metbank also bounced back to profitability in 2015 posting an after tax profit of $259,510 from a $3,7 million loss-making position in the previous year. Its growth was attributed to cost containment measures and earnings from the bank’s trading activities.
ZB Financial Holdings also returned to profitability with net profit of $8,9 million for the full-year to December 2015. This compares with a net loss of $9,8 million in 2014. Total assets for the group increased by 12 percent from $379,8 million in 2014 to close the year at $424,1 million. The bank declared a dividend of 0,54 cents per share for the full-year. Barclays Bank and BancABC also posted impressive results.
Many people wonder how the financial services sector achieved these results given the ongoing economic challenges in Zimbabwe.
“It’s simple. Banks have a cautious approach in the way they do business and implement their strategies accordingly. Unlike other sectors of the economy banks don’t jump blindly on business prospects but analyse their operational environment to understand its dynamics. Their interests are long term,” says Bongani Ngwenya, economic expert.
As a result, he says, banks have tailor-made their products in such a way that ensures profitability while being cautious of associated risks.
“After a rude awakening on non-performing loans banks now concentrate on safety and want to provide financial products, which ensure high retains. You’ll realise most banks thrive on consumer loans,” added Ngwenya.
“As long as the client has job security they give such a person a loan. These loans are based on an individual’s income to minimise the risk of default. However, the interest rates are generally high compared to the region and our banks make the bulk of their income from that.
“While the amounts given are small, they are manageable and banks earn much from volumes. These consumer loans are typically retail products. Since the finance sector has high risks, returns are also high and it’s not a surprise banks are making profits.”
However, what is of major concern to economists and policy makers is limited lending by banks to the productive sectors of the economy.
In his 2016 monetary policy statement Reserve Bank of Zimbabwe Governor John Mangudya also stressed the need “to transform the economy through rebalancing it away from being a consumptive or supermarket economy to a productive one.”
This requires substantial funding in both productive and service sectors such as mining, agriculture, tourism, construction, transport, manufacturing and telecommunications.
Economic experts warn that the continued failure by banks to support productive sectors could turn out to be a major undoing for the sector.
“The problem is that our banks aren’t borrowing and it remains to be seen if they’ll maintain this profitability direction going forward,” says Reginald Shoko, a Bulawayo-based economic analyst.
“It would appear banks made profits from the wiping away of most bad debts by Zimbabwe Asset Management Corporation (ZAMCO) from their cashflows. That’s why it’s easy for them to make profits.”
According to the RBZ, ZAMCO has made notable progress in fulfilling its mandate of cleansing banks’ balance sheets through acquisition and restructuring of non-performing loans. As at December 31, 2015, ZAMCO had acquired and restructured non-performing loans totalling $357 million from a number of banking institutions.
Given the general lack of public confidence in the banking sector after many people lost their “Zimdollar” savings when the country adopted the multi-currency system in 2009, Shoko says most banks would be struggling had it not been for RBZ intervention through ZAMCO.
“What we see is a result of some financial engineering by the RBZ but that’s not sustainable. The RBZ wanted to give banks some confidence but the problem is that Zimbabweans are generally not banking.
“We still have high bank charges. The emergence of mobile money platforms has also had an effect and our banks would need to be innovative to survive,” says Shoko.
Last year local banks announced an astronomical rise of up to 300 percent in automated teller machines (ATM) service charges to $4 from $1 for withdrawals under national electronic funds switch, ZimSwitch. Players agreed to review of the fees, which they said would maintain ATM infrastructure. Analysts have condemned the proposition on the ground that it increased the burden on consumers and was seen as a deliberate ploy to boost non-interest income for the sector. Visa cardholders’ withdrawal fees on other bank’s ATMs also rose to two percent from one percent.
Non-interest income refers to bank’s income mainly from service and penalty charges and to a much lesser extent, from asset sales and property leasing. Unlike interest income, which comes from loans, this income is largely unaffected by economic and financial cycles.
Since August 2015 the central bank has capped lending rates for finance institutions at 18 percent as part of banking reform processes in a bid to improve economic activity and enhance stability. Previously lending rates in Zimbabwe have been as high as 40 percent and this was stifling companies’ capacity to borrow to fund operations or revive projects.
Lenders blamed the high interest rates on high risk taken in lending to Zimbabwean companies and individuals as well as difficulties in obtaining funding for on-lending.
Businessman Dumisani Sibanda said financial institutions were short changing clients through exorbitant bank charges and interest rates.
“Banks aren’t creators of wealth but they’re a service to the public. The problem with our banks is that they’re overcharging clients instead of making money from lending interests. We’ve a problem of disproportionately high interest rates,” he said.
Bankers Association of Zimbabwe (BAZ) president Sam Malaba could not be reached for comment.
Treasury has projected Zimbabwe’s economy would grow 2, 7 percent this year but lack of funding to oil the economy points to a depressed outlook.
This is reflected by negative inflation of about -2,4 percent, weak aggregate demand, tight liquidity conditions, downward correction in both food and non-food prices and the depreciation of the regional currencies against the United States dollar.
Adverse weather conditions in the wake of the El-Nino system and the depressed levels of capacity utilisation in the productive sector, reported at about 34 percent by the Confederation of Zimbabwe industries, compounds the situation.
In aggregate, the Zimbabwe Stock Exchange market capitalisation also dropped from $4,3 billion in December 2014 to close at $3 billion at December 2015, thus underlining reduced market competitiveness.
Online Reporter