Total after tax profit for reporting banks tumbled from US$83,8 million to US$78,7 million in the full year to December 2014 (FY14) on the back of a surge in impairment charges, a report by an advisory and brokerage firm says.
According to the banking sector analysis report released by MMC capital, a total of 10 banks, accounting for 67% of the reported banks, recorded profits in FY14 compared to 12, accounting for 71% of the reported banks in FY13.
Consequently, banks overall cost-to-income ratio fell marginally to 72% in FY14 from 73% recorded in FY13.
In the period under review, CABS, Stanbic and CBZ contributed about 77,5% to banks bottom lines compared to 92,9% attained by Stanbic, CABS, CBZ and StanChart in 2013.
On average Return On Equity (ROE) and Return on Assets (ROA) for the reporting banks for FY14 was 9% from 10% in FY13 and 1% unchanged from FY13 respectively.
FBC Building Society, with cash flow from operations to total operating income ratio of 204%, had the best earnings quality.
Stanbic bank came second with cash flow operations-to- total operating income ratio of 109% and FBC (50%), Barclays (-91%) had the worst earnings followed by BancABC (-77%) and Ecobank (-63%).
The aggregate Net Interest Margin (NIM) for the sector contracted to 6% in 2014 compared to 7% in the prior period.
BancABC, Metbank and Ecobank were the most profitable lenders in the period with NIMs of 10% from 9% in FY13 , 9% from 8% in FY13 and 8% from 9% in FY13 respectively.
The savings bank, POSB, also had a good run in NIMs after recording a 7% interest margin in 2014, reflecting its success in advancing loans to the deficit units.
While banks must make money from core lending activities, in Zimbabwe the interest income component in total income for the majority of banks currently stands at approximately 50%, a marginal improvement from 49% which was recorded in FY13.
“It is plausible to note that the ratio has been on an upward trend since 2009 (29% in FY9, 34,2% in FY10 , 46% in FY11 and then 45% in FY12 . Metbank, with net interest income to total income of 91% from 60% in FY13 2013 recorded the highest percentage, displacing BancABC which occupied the pinnacle position last year with a ratio of 69%. BancABC garnered 72% this year, followed by Ecobank (65%),” said MMC capital.
Reporting banks aggregate cost-to-income ratio slightly weakened to 72% from 73% reported in the same period last year, reflecting a slight improvement in the efficiency of the industry.
Cost to income ratio is an efficiency indicator for banks, which shows the extent to which operating income absorb operating expenses, unlike the net interest margin, the lower it is, the more profitable the bank is.
During the period under review, Metbank had a cost to income ratio of 130% which implies that the institution had an operational loss, owing to the obtaining liquidity challenges. FBC Building Society had the lowermost CIR of 46%, reflecting its operational efficiency.
According to the RBZ, total loans and advances increased from US$3,70 billion in FY13 to US$4 billion by end of FY14.
Lending by some major banks remain tight with some declaring that they were prepared to lose market share in certain asset classes to ensure that loans are of an appropriate quality and margin.
On average, the industry’s loan-to-deposit ratio (LDR) retreated from 73% in December 2013 to end at 72% on 31 December 2014 (based on reporting banks). This drop in the loan to deposit ratio indicates that banks are now more cautious in their lending approach, following the soaring of non-performing loans.
Loans and advances continue to be dominated by commercial banks with a market share of 83% in 2014 down from 86% in FY13 and building societies with a market share of 15% were up from 12% recorded in the same period last year.
The report notes that there was an increase in the distribution of loans and advances to key sectors of the economy such as manufacturing and agriculture whilst exposure to individuals has decreased from 25% in FY13 to approximately 21% in the period under review.
“The distribution of bank loans and advances to the private sector in 2014 was in this order; Individuals (21%), Distribution (16%), Agriculture (18%), Manufacturing (25%), and mining (5%). This positive exposure in productive sectors is plausible since these sectors are essential in propelling economic growth,” MMC said.
However banking sector’s LDR decreased to 72% from 73% last year for reporting banks, indicating that loans and advances are growing at a slower rate than deposits as a result of increased lending conservatism by banks in the country.
Ecobank (LDR of 115%), Banc ABC (LDR of 102%) and FBC bank limited (95% LDR) were the most aggressive lenders during the period under review in a bid to generate more interest income and attract depositors.
During the period, the total banking sector assets grew from US$5,47 billion to US$5,85 billion from December 2013 to December 2014 with CBZ remaining the largest bank in Zimbabwe by assets with an asset base of US$1,52 billion, nearly more than double the size of its nearest competitor (78% greater than), CABS which has a balance sheet size of US$0,85 billion.
The brokerage firm said the economic environment remains tense with credit expansion continuing to be inhibited by the obtaining liquidity challenges, adding that the ever increasing non-performing loans will likely result in banks being more cautious in their lending approach this year relative to the prior year.
“We are of the view that, there will be less impairment charges this year following the massive ‘book cleaning’ which happened last year when almost every bank chose to increase their bad debts allowances. Some of the non-performing loans dated as far as 2009. This will likely have a positive impact on profitability this year, though marginal,” said MMC.
The research firm predicted a decline in deposit growth urging, banks to develop products that are critical in tapping into the unbanked society, especially those in the informal sector.