DIVERSIFIED financial services group Kingdom Financial Holdings Ltd on Wednesday said it has managed to survive the crisis that affected Zimbabwe’s financial services sector despite postin
g reduced profits for the year ended December 31 2004.
In remarks accompanying the results, interim chairman Sibusisiwe Bango said that KFHL realised a profit of $4,9 billion in historical terms compared to $20,6 billion in the same period in 2003, which she partly blamed on the contagion effect of the crisis in the sector on KFHL’s main banking subsidiary – Kingdom Bank.
“While the results are below expectations, the group managed to survive the financial crisis that gripped and dominated the banking sector during the year. The Zimbabwean systemic risk associated with local banks put tremendous pressure on the group, culminating in a run on deposits of its banking subsidiary in December 2004,” Bango said.
“The liquidity problems which faced the sector during the year, also resulted in high interest rates that then translated into increased cost of funding and lower margins on the treasury front,” she said.
However, she said the group managed to survive and was shielded from a fatal crisis due to its diversified structure, together with solid support from major shareholders.
Bango said while net interest income generated 79% of the group income compared with 42% the year before, the group could not successfully achieve its strategy of shifting away from wholesale to retail deposits mainly due to the liquidity situation that prevailed during the period under review.
“As a result, the composition of the deposits remained heavily skewed towards the wholesale market at 86% compared to 80% in the previous year. Efforts are being made to reduce the cost of funding given the negative margins incurred in the last quarter of the year,” Bango said.
Last year the central bank placed six financial institutions under the management of curators after they had been found not to be in a sound and stable position.
The closure of the banks seriously undermined a number of locally-owned banks which were greatly affected by serious liquidity problems due to lack of confidence.
She said dealing profits were affected by lack of opportunities on the foreign exchange market and the bearish nature of the stock market, while derivative products were also not attractive given the high funding costs against perceived gains in a bullish market.
Bango said other incomes which comprise mainly fees and commissions, contributed 10% of group income compared to 13% in 2003, while the group’s disinvestment from Zambia had generated a profit of $$2,5 billion which however translated into a loss of $13,7 billion in inflation-adjusted terms.
She said the banking subsidiary experienced a loss of $21,9 billion compared with an after-tax profit of $13,6 billion achieved in 2003, mainly due to the increased expenses and operating costs against a shrinking revenue base.
Dealing with post-balance sheet events, Bango said the group had managed to successfully raise $100 billion through what has now become Zimbabwe’s largest ever rights issue for a listed company.
The success of the rights issue, which has strengthened the group’s capital base, “points to the confidence and support” the shareholders have in KFHL, Bango said.
“The group is now poised for greater success following the buttressing of its capital base,” she said.