POSB efficiently run bank

POSB is one of the most efficiently run banks, posting the third-best return-on-assets (ROA) ratio at 5,8%, a survey by the Zimbabwe Independent has shown.

Staff Writer.

The ratio is an indication of the return that an entity has made on the assets of the business. A positive ROA is desired and the higher the better.

Only FBC Building Society and Steward Bank at 6,7% and 6,5% respectively rank better than POSB.

Of all of the 18 banks analysed in the survey, the National Building Society (NBS) ranks last as it has a negative ROA of -1,2% and that is largely due to the fact that it is new market entrant and still establishing the business.

Unsurprisingly, POSB also had an impressive return on equity (ROE) at 23,7%. In terms of ranking the bank came fourth.

ROE is a profitability ratio that reflects the return earned on the equity invested in the business, and a high and positive rate represents a good return, while a negative one means the erosion of equity. Again, NBS is the only entity that has a negative ROE of -3,56%

The bank’s staff costs account for 43% of its total expenses. In relation to income, staff costs come out at 35%. This ratio reflects the human resources cost incurred in generating the earnings of the bank. As a cost item, the lower the rate the better it is for the entity.

It also depicts the efficiency with which an entity manages its biggest cost centre, seeing as banks are in the financial services industry, which relies significantly on human intervention apart from the information technology.

NBS has the highest ratio of 55%, largely due to the fact that it is a relatively new entity that could be regarded as still finding its feet compared to its competitors.

For this ratio to be well articulated, the head count can be used to compute the cost per employee contribution versus the revenue per employee, as the efficiency is better articulated that way.

POSB has a cost of funds ratio of 1,75% which compares unfavourably to six other banks which have a sub-1% cost of funds.

Stanbic comes first with 0,037% followed by StanChart at 0,039%, which almost literally means they do not have challenges attracting deposits as the market confidence in their entities is very high.

This ratio indicates the interest-bearing deposits that the bank needs to pay interest on and, the lower the rate the better, as it pretty much sets the tone for the profit to be made on interest earned from loans.

The higher the ratio, the more it is likely to cut into profitability and could also signal the lack of confidence depositors have in the bank, or the bank’s aggressive deposit mobilisation strategy.

Banks with the highest cost of funds are FBC Building Society (6%), Metbank (5,57%), CBZ (4,27%) and Agribank at (4,23%)

During the year under review, the bank reported total net income of US$38 million with interest income coming in at US$14 million. Profit after tax (PAT) amounted to US$11 million.

POSB is a wholly state-owned institution but government has intimated plans to partner a private investor in order to improve the bank’s capitalisation.

The balance sheet size of the bank grew by 38% from US$164,33 million in 2016 to US$226,69 million in 2017. This was attributed to a deposit book growth of 39%.

Deposits, during the year under review, were up from US$115 million as at December 31 2016 to US$159 million as at 31 December 2017. The bank’s deposits account for only 1,8% of the industry’s US$8,6 billion. Loans and holdings of Treasury Bills grew by 28% and 40% respectively.