HIGHVELD Financial Services, esteemed for its effective employment of assets, has posted an inspiring set of results that could be the prelude to the discount house’s multi-billion-dollar transformation into a fully-fledged merchant bank.
Managing director Ben Katsande said in his report on the discount house’s operations, the financial institution’s performance had “continued to strengthen despite the difficult conditions prevailing”.
“In an increasingly challenging environment particularly for indigenous banks, our results demonstrate the success of the bank’s product offering, good customer service focus and a sound risk management framework,” said Katsande.
Earnings per share increased 1 190% to $23 million during the year to December 31, 2005.
Profit after tax surged 1 200% to $70 billion during the year, from $6 billion the previous year.
The three-year old financial institution, which recently received favourable ratings from international rating agency Global Credit Rating Co (GCR), increased its asset base by 1 030% during the year to December 31, 2005.
“The performance was achieved in a very difficult and high inflation environment which saw inflation averaging 267% for the year under review,” said Edmore Ndudzo, the financial institution’s board chairman.
Although Ndudzo did not indicate the discount house’s intention to transform into a merchant bank, analysts said there were strong market signals for such a transformation.
Highveld is the smallest of four discount houses in the country, having started operating in April 2003, exactly three years ago.
Rating agency GCR said in its report on the discount house that the financial institution needed to diversify its earnings base to cushion itself against increasing competition.
“Competition in the market for trading paper and the narrowing of margins will require Highveld to diversify its earnings base, which could expose it to increased business risk going forward,” GCR said.
GCR said the need for discount houses in the current operating environment had been reduced, considering that banks were no longer targeting aggressive advances growth but were focusing more on remaining short and placing excess liquidity in government securities.
“Accordingly, competition has increased, due to the blurring of traditional barriers between the
different types of financial institutions in Zimbabwe, with discount houses no longer enjoying the
benefit of being the exclusive intermediary between the RBZ and other financial institutions and, therefore, competing more directly with the banks.
“This has been the progression in more developed markets where the role of discount houses has become largely obsolete. In light of this, some discount houses in the market have already converted into merchant banks, with Highveld indicating its intentions of following suite,” GCR said in its report.