TETRAD – Smiles all the way for banks

By Brian K Mugabe

THE stock market, which has been following a sideways trading pattern for most of the month of August, continued to exhibit similar patterns in the week to September 1 although with a weake

r bias as the industrial index shed 4% to close at 881 746 points.


A look at the individual stock market performances reveals that 34 counters declined during the week while 24 advanced and 22 closed the week unchanged. Of particular interest was the presence of CFI, General Beltings and Zimre in the bottom 10 performers for the week.


These companies, related as they are to a prominent “embattled” businessman, have had a hard time as well as investors attempts to offload their holdings following not only a spate of profit warnings from some of them, namely General Beltings and Steelnet, and problems at Zimre’s South African operation but also the specification of several other related businesses, as reported in a local daily. What was surprising was that included in the list of companies for specification was CFI Holdings because while the businessman is the major shareholder in the company, it is a public company with many other minority shareholders.


By specifying CFI, which effectively “hamstrings” the operations of the company given the stringent conditions inherent in the state of being specified, the minority shareholders are likely to be hugely prejudiced by investigations that have nothing to do with them. Surely, it would have made more sense for the authorities to specify the investment vehicles in which the businessman’s shares are held?


Also, until such a time as it can be quantified as to what the potential impact of the specification will be on the day-to-day operations of CFI, would it not be prudent for the ZSE to suspend trading in the counter? Alas, it seems as though more often than not minorities continue to get a raw deal as regards their shareholdings in listed companies.


The reporting season for financials reached its apex over the past week and what a climax it proved to be as some of the results were truly awesome despite evidence of over-provisioning on the part of some! With the forex related income stream having been severely constrained, the banks still managed to generate massive profits, taking advantage of the opportunities presented to them by the volatility in the money market and the spread between deposit and lending rates. This was shown in the growth of the balance sheets of those institutions perceived by the public to be safer, as well as the growth in the net interest margin and increased contribution of funded income to earnings for most players.


A look at the results of commercial banks or their holding companies makes for interesting reading as shown in the table below.


The return to dominance of the multinational institutions is evident in terms of balance sheet size which would also have been a factor as alluded to in this article in their massive net interest income earnings. CBZ was the pick in terms of earnings growth as it recorded an increase in excess of 3 000%, a result reflected in the jump in its share price the day after publishing.


The second half, one would expect, is likely to reveal performances showing earnings growth of a lesser magnitude, as the central bank governor pushes for smaller spreads between deposit and lending rates as well as volume and not interest margin driven growth. However, whatever may happen, who can bank against the innovativeness of the sector and its ability to find alternative revenue streams in this uncertain economic environment?


Having said that, the biggest risk they face remains systemic and one hopes that adequate steps have been taken to clean up the advances books and that risk management has been strengthened, lest mismanagement threaten the sector once more.

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