CBZ records strong earnings

CBZ Holdings Ltd reported seemingly strong earnings and made it rain for investors but the currency situation did not play in favour of the financial services group.

By Chris Muronzi

A quick analysis of the December 2018 full year earnings numbers shows that while the group reported net income of US$75 million from US$29 million, in real terms the figure is not so great.

Although the bottom line is showing a strong 160% growth on FY17, it is not so much in real terms.

At Wednesday’s going rate of RTGS5: US$1, it means CBZ reported around US$15 million in real terms.

The group’s interest income came down significantly from US$152,9 million to US$128 million owing to reduced lending in the period under review amid concerns over rising credit risk.

Advances came down 48,3% to US$487 million from US$941,4 million while the non-performing loans (NPL) ratio increased to 16,4% from 10.9% in FY17.

Non-interest income rose from US$91,3 million to US$108 million. Instead, the group increased its investment in fixed income securities to US$1,2 billion from US$899,9 million, a 38,3% increase.

Total comprehensive income for the year rose to US$75,233 million from US$29,676 million.

Total deposits rose to US$2 billion from US$1,8 million. Of this, 28% were term deposits while 72% were retail deposits.

The central bank has kept interest rates capped at 12% for two years and is reluctant to raise the rate despite marauding inflation.

This, coupled with rising defaulting rates on loans, means banks cannot realise additional income from funds on their books from core lending activities. An analysis of the results shows that banks are opting to invest in fixed income securities — bonds and Treasury Bills.

CBZ investors will pocket a total US$9 million.

The bank’s loan-to-deposit ratio came down from 55% in FY17 to 28,8% in FY18, a figure CE Blessing Mudavanhu said was worrying as he concluded his presentation in the capital Tuesday.

CBZ is Zimbabwe’s largest bank by deposits and assets.

Mudavanhu said non-performing loans had risen to 16,4% in the period under review or around US$100,1 million.

The bank is already above US$100 million capital requirements of 2020. He said innovations remained key.

“There will be some recalibration to ensure that we don’t lose value,” Mudavanhu said.

“That number (loan-to-deposit ratio) is not a good number,” he told analysts this week. “We need to improve our credit management platform.”

Of the US$100 million NPLs, agriculture accounted for 32%.

He forecast a 15% growth in total assets, advances growth by 35% and total income growth of 32% in FY19.
The performance was achieved against a background characterised by what the group described as “weak sectoral linkages, shortages of foreign currency and general macroeconomic uncertainties.”

“The official rate of inflation, year-on-year, increased noticeably from 3,5% to 42,1% with increased acceleration during the second half of the year. This was largely driven by currency weaknesses experienced during the same period. The year-on-year rate of inflation closed at record level of 42.1%, resulting in the average annual inflation rising from 0.9% in 2017 to 10,5% in 2018,” the group said in a statement attached to its results.

“The average lending rates prevailing in the financial sector for individuals and corporates marginally increased from averages of 9,42% and 6,91% in 2017 to 9,50% and 7,12% in 2018 respectively. On the other hand, one-month and three-month deposit rates trended downwards, reflecting the generally high levels of local liquidity on the money market.”

Return on equity stood at 23,8% while return on assets was at 3,06%.

Dividend cover was 8,3 times.

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