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Golden Sibanda Senior Business Reporter
ZB Holdings says establishing a foothold in the targeted Mozambican reinsurance market may require up to $10 million, as the group seeks to prop up tapering revenues. Managing director Mr Ron Mutandagayi said in an interview last week that there were opportunities to exploit in that market due to the growth in infrastructure and property sector. “There is a lot of infrastructure and property development there and we want to tap into these opportunities,” he said. This expansion comes on the back of declining group revenue.
Progressive increase in coal production and implementation of large infrastructure projects, coupled with budgetary expansion, are expected to continue to drive Mozambique’s growth, projected at 8,5 percent in 2014.Mr Mutandagayi said ZB was working on increasing revenue contribution of its reinsurance unit from between 5 and 10 percent to 20 percent when it expands into foreign markets.
He however pointed out that the contribution of the reinsurance unit would largely depend on how much will be invested. A total of $2 million has been invested in the initiative to date.
Mr Mutandagayi said the reinsurance technical result increased by 16 percent in the half year period to June 2014 on increased treaty participation and more facilitative business.
Reinsurance and underwriting margin closed at 11 percent, a comfortable level for sustained profits in that segment, as ZB now looks to leverage external markets for growth.
Expansion into Mozambique forms part of ZB’s strategy to stymie the declining revenues, which went down by 22 percent in the half year due to a 25 percent fall in lending income.
Net interest income for the group came in at $9,5 million, far behind non-interest income for the interim, which was $15 million.
ZB said total assets growth was restricted only to 4 percent as the group became more cautious about asset creation, due to the amplified credit risk in the domestic market.
The group said the advances book grew by 4 percent, 49 percent of which was accounted for by mortgage based facilities. Total deposits grew by 6 percent in the interim period.
ZB said negative returns and efficiency outturn reflected of the short-term misalignment of revenue and the old infrastructure base.
Return on equity was minus 2 percent, return on assets came in at zero, earnings per share were 0,01c, net asset value per share was 0,37c, cost to income ratio was 108 percent and non-interest income ratio was 71 percent in the interim.
Non-performing loans increased to 22 percent from 18 percent in the comparable period last year due to clean up of books.
The loan to deposit ratio was 59 percent, liquidity ratio 40 percent and cash cover was 40 percent. Tier 1 capital was 19 percent while total capital ratio came in at 19 percent as well.
ZB said the liquidity ratio and cash cover in the group, besides meeting regulatory requirements, spoke long term sustainability.
Going forward, Mr Mutandagayi said ZB will focus on cost optimization through right sizing, which will affect short-term results, but was expected to drive growth in the future.
Already, the group has closed ZB Asset Management, ZB Securities and discontinued in-sourced security and cleaning services.
Staff numbers have been cut from 1 600 to 1 200 with further reduction expected to bring the figure to 600.
There will be close scrutiny of non-viable operations and channels, which may result in further closures or re-orientation. Apart from entering new markets, measures to enhance revenue include aggressive mobilisation of funding.
A total of $9 million was raised in the interim through property backed facilities, inclusive of a $5 million from Agro Bills.
ZB is planning to float more agro bills of longer tenor.
Investment will also be directed into technology to ensure that the group is able to achieve more using less resources.
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