ECONET Wireless Zimbabwe investment in TN Bank came under intense spotlight this week after the bank suffered a massive US$10,4 million loss for the 14 month period ending February 28 2013.
According to a statement attached to the bank’s financial results, the increased costs of prudential provisioning on its loan book and the rationalisation of the branch network took a toll on earnings, denting the bank’s financial performance.
TN Bank took a massive US$10,3 million write down on loans and advances which together with US$25,154 million in operating expenditure, a 150% increase over similar expenses incurred in the previous year, reversed a US$1,573 million net profit posted at the end of 2011.
This was despite the bank recording a 19% growth in net interest income, which was at US$11,2 million while non-interest income came in at US$10,5 million, which the bank said was earned mostly from net dealing commissions.
However, the bank’s owners, Econet, came out strongly in defense of its investment in the bank.
While presenting Econet Wireless Zimbabwe’s trading results for the year ended 28 February 2013, Econet CEO Douglas Mboweni said the bank was a strategic investment acquired mainly to support the rollout of the mobile money platform, Ecocash.
Mboweni told analysts Ecocash’s growth was largely driven by its strategic equity position in the bank.
“You will find that without a bank, there are certain use cases which we would not have been able to do and we would not have been able to achieve the growth metrics achieved so far,” Mboweni said.
“You will find as a result, Ecocash is the world’s fastest growing mobile money transfer service after M-Pesa of Kenya. This would not have been possible without our involvement in the bank.”
He said acquisition of the bank was also consistent with the parent company’s strategy to aggressively grow mobile data usage going forward.
He noted Zimbabwe had a high proportion of grey phones which have limited functionality and were not suitable for data optimal consumption.
After a detailed analysis of the type of handsets required in the market to drive data, Mboweni said, the company needed to dramatically increase the number of smart phones.
“For us to increase the consumption of data to new and unprecedented levels, you need smart phones. The bank will finance the availability of devices to our subscribers and we would not be able to do that in an effective manner without taking a strategic position in a tool that would enable that to happen,” he said.
Econet acquired a 45% equity stake in the bank in July last year and made a subsequent offer to shareholders in January that saw the mobile telecommunications group shoring up its shareholding to a 98,6% controlling stake in the bank.
Econet took control of and demerged TN Bank from founder Tawanda Nyambirai’s Lifestyle Holdings.
Following the demerger, Econet instituted massive board and management changes that have resulted in a virtually changed TN Bank. The changes resulted in the entire board led by former Econet Chairman Tawanda Nyambirai being replaced by a new look board chaired by Olumatosmisin Fashina.
Analysts have been concerned by the massive investment made by Econet in acquiring TN Bank, which they say has not matched the returns expected from such an endeavor.
So far, Econet has spent more than US$70 million on the bank and is likely to spend more money as the bank will need to meet the US$100 million capital thresholds for commercial banks announced by the Reserve Bank of Zimbabwe last year.
On the back of the increased capitalisation levels, the bank’s liquidity ratio improved to 25% from 5%. Fashina said measures were being implemented to improve the liquidity ratio to above the 30% statutory thresholds.
Following Econet’s takeover of the bank, its total equity increased to US$75 million as at 28 February this year from US$15 million 14 months ago following the injection of an additional US$50 million by Econet this year bringing the total investment to US$70 million.
The injection by Econet was necessary to cushion the bank, which suffered hugely negative operating cash flows of US$46 million on the back of a massive US$55 million increase in operating assets.