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Indigenous banks weather the storm

Indigenous banks seem to have weathered the liquidity storm, reporting strong full year numbers showing steady growth in both interest and non-funded income.

By Chris Muronzi

First to come to the market was CBZ which reported a 4,4% growth in total income to US$150,5 million as at 31 December 2013, a rare feat for a Zimbabwean bank.
Interest expense was US$76 million.

Interest income stood at US$171 million from US$156 million, reflecting the size of the bank’s US$1 billion loan book from US$890 million the prior year.

Non-interest income also rose to US$48 million from US$44 million, unperturbed by restrictions imposed by the previous central bank administration.

Banks signed a memorandum of understanding to stop them milking depositors after the central bank felt the bulk of financial institutions’ income was coming from non-funded income- fees and commissions.

In principle, banks are supposed to make money from their core lending activities. The central bank is already getting tough on banks judging by acting Reserve Bank of Zimbabwe (RBZ) boss Charity Dhliwayo’s stance that banks had to get the nod to raise rates and fees when she presented her maiden monetary policy statement in January.

CBZ reported an impairment of US$19,4 million, reflecting the bank’s loan book size of US$1 billion.

Banks are battling a high prevalence of non-performing loans.

For instance, with a non-performing loan book of US$47 million against a loan book of US$1 billion, CBZ are either “the masters of the Safe Banking model” or understate the level of non-performance of loans (NPL).

NMB warned shareholders recently that its banking subsidiary’s loan book would be impaired.

The group sees itself making an attributable loss for the year ended December 31 2013.

CBZ’s after tax profit was US$36 million from US$45 million. The numbers could have looked even better had it not be for the impairment.

“A 4,4% growth in total income to US$150,5 million as at 31 December is by no means a mean feat in Zimbabwe’s banking environment where command philosophy seems to be rearing its ugly head following the RBZ’s decree not to allow any charge increases by banks without its approval,” Econometer Global Capital said when CBZ released its numbers recently.

A few weeks later, FBC Holdings, one of Zimbabwe’s largest financial institutions, also released its numbers, defying the odds with a pre-tax profit of US$16,2 million from US$16,9 million in the same period last year. The group however reported an impairment US$3,6 million to US$7,2 million. The NPL ratio of 8,7% is against the sectoral average of 15,92%

FBC CEO John Mushayavanhu says his bank’s loan book is secure, indicating the bank had adopted a tougher risk management policy.

For instance, all loans above US$9 999 require security in the form of title deeds.

“For any loan above US$9999, we need to see the colour of your title deeds,” Mushayavanhu said. Total income was US$79,5 million from US$74,2 million, up 7% from the prior period.

Interest income was US$43 million from US$37,8 million, a growth 16% from the prior comparative period. Fees and commission income rose from US$20 million to US$22 million, up 8%.

While profits have been growing, Mushayanhu contends the share price has not been tracking the growing bottom line, which he described as exponential. (See graph).

In terms of the group’s contribution to pre-tax earnings, Eagle Insurance contributed the lion’s share, chipping in US$1,6 million, a 126% growth from the prior year.

Both FBC Reinsurance and Micro Plan Financial Services, the group’s micro business, contributed 37% apiece to pre-tax earnings while FBC Bank, FBC Building Society contributed 6% and 29% respectively. FBC Securities made a profit of US$32 490 from a loss position in the prior year.

FBC’s total income over a five-year trend
FBC’s total income over a five-year trend

FBC has a deposit base of US$280 million. Net Loans and advances grew by 35% to US$215 million om the same period.

The cost to income ratio rose from 77% to 80% largely owing to an increased impairment allowance.

The bank has an average of 100 000 active accounts. But its manufacturing division — Turnal holdings — made a loss of US$3 million. Mushayavanhu says management has since dealt with the situation, which was largely to do with a debtors situation that could have been easily dealt with.

He also says Turnal has since taken a decision to sell products on cash to deal with debtors.

The company had a US$16 million debtors book for product that could have been sold on cash, he said.

Mushayavanhu further says the financial services giant will rid its loan book of insiders as the group moves to comply with central bank rules compelling banks to stop lending to insiders.

The FBC boss told analysts and journalists at a media briefing in the capital this week that insider loans accounted for only 3% of the bank’s loan book.

Of the US$6 million lent to insiders, 99% was performing. But Mushayavanhu says even the 1% was secured, adding the bank would realise security, a banker’s word for selling pledged collateral.

He said of the US$224 million loan book, US$204 million, a figure representing 91% of the loan book, was performing and well-rated, while US$14 million has a low rating. He even said his bank would still lose money even after securing the loans.

Mushayanhu said his bank raised US$53 million last year after a US$40 million bond issue was oversubscribed.

His bank has also moved to deal with insider loans, he said.

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