First Capital secures $20m line of credit

FIRST Capital Bank (FCB), the first financial institution to list on the Victoria Falls Stock Exchange (VFEX) says it has mobilised a further US$20 million line of credit with the African Export-Import Bank (Afreximbank) and is now at the drawdown stage.

The development comes as the bank has indicated that it is close to fully utilising the EUR12,5 million lines of credit it secured from European Investment Bank (EIB).

In a statement accompanying financial results for the period ended June 30, 2023, the bank said the US$20 million line of credit was now at drawdown stage.

“The EUR12,5 million European Investment Bank (EIB) line of credit was close to being fully drawn during the period under review providing significant capital relief to medium-sized corporate customers,” it said.

“A further USD20 million line of credit has been mobilised with the African Export-Import Bank (Afreximbank) and is now at drawdown stage.”

When it secured the EUR12,5 million line of credit, it noted that the funds will be deployed to bridge capital funding needs in the market, which will help prop up economic activity.

The facility secured from the EIB was a medium-term facility running up to seven years and is expected to provide capital funding for eligible investment projects undertaken by small to medium enterprises (SMEs) and mid-cap companies under First Capital Bank Limited.

The credit line is part of the Zimbabwe Private Sector Facility from the Impact Finance Envelope of the Investment Facility (IF) that is extended by the European Investment Bank to a group of financial institutions located in Zimbabwe.

Meanwhile, on its financial performance in the period under review, the bank’s total deposits were US$109,5m which is lower than US$136,1m as of December 31, 2022.

It noted that the reduction was largely driven by the loss of value on Zimbabwe dollar denominated deposits following a 735 percent depreciation of the local unit over the period.

The local unit deposits constituted eight percent of total deposits compared to 22 percent at December 31, 2022 while US dollar denominated deposits increased by 6,6 percent during the period under review.

There was a 23 percent loan increase to customers in the period under review to close at US$79,5m, compared to US$65,9m as of December 31, 2022, with 95 percent of business having been underwritten in US dollar as at June 2023.

An adjusted profit of US$9,04m was posted supported by income growth over the period, at US$32,2m.

“This growth was driven by an improvement in the underlying business, with net interest income and net fees and commissions having increased by 35 percent and 23 percent respectively,” it noted.

Operating expenses increased by 22 percent from US$16,6m in the first-half of 2022 to US$20,3m in the period under review.

This resulted in the cost to income ratio moving from 58 percent in June 2022 to 63 percent in June 2023.

Turning to capitalisation and liquidity state, the bank said the devaluation of the local unit exerted pressure on capital resulting in the bank’s US dollar denominated core capital decreasing marginally by two percent to US$48 million as of June 30, 2023 from US$49 million reported as at December 31, 2022.

However, it said the level is still above the regulatory minimum of US$30 million with a comfortable margin of safety being maintained.

“The Bank’s capital adequacy ratio remained strong, closing the period at 37 percent which is well above the regulatory minimum of 12 percent.

“With a liquid assets ratio of 49 percent, the Bank carried a comfortable buffer above the regulatory minimum of 30 percent representing capacity to underwrite more business.”

Meanwhile, the financial institution said it anticipates that the listing on the VFEX will unlock value for shareholders as well as providing great opportunities for investors.

“Furthermore, through the operation of a memorandum of agreement executed with the VFEX the Bank has offered to lend its technical capacity in suctioning for the deepening of capital markets.

“This includes providing custodial, clearing and settlement facilities for the different market opportunities in a safe and secure manner. Operationalisation of envisaged solutions is in progress,” it said.

Prior to joining VFEX, the bank said the rationale of migration was driving by opportunities for growth in its US dollar loan book and balances to over 70 percent, with foreign currency income contributions between 55 and 65 percent in recent months.

It added that it plans to roll out more foreign currency denominated products to boost its foreign currency revenue.

The bank said the potential increase in the US dollar earnings increases the shareholders’ expectation to receive their return in US dollar through US dollar dividends and US dollar capital gains on share disposal which the VFEX offers in comparison to the ZSE.

It highlighted that improved access to USD facilities through the VFEX will enable it to maintain a competitive position in the market by offering USD capital to such corporates.