THE past year has seen a lot of policy reforms which have had adverse effects on institutions and individuals as their spending power has been cut. Banks have been on the centre of it all, forced to levy low charges for transactions and low interest rates, while trying to preserve the value of their assets as inflation continues to hit hard. Amid the economic crisis, ZB Holdings Limited posted an impressive set of results for full-year 2018. Business reporter Melody Chikono (MC) spoke to ZB chief executive Ron Mutandagayi (RM) to understand how the bank has fared. Below are excerpts of the interview.
MC: Can you apprise us on your 2018 financial performance and the dynamics at play?
RM: Thank you very much, the group posted a profit before tax of US$27,33 million, up from US$18,01 million in 2017 which is an increase of 52%. When it comes to profit after tax, we posted a profit of US$21,79 million compared to US$14,15 million last year which is an increase of 54%. The main drivers of our performance have been around customer acquisition.
We have been able to get a number of new accounts throughout the whole group on the insurance side on the banking side and another area that has performed quite well is our corporate finance department.
We have been able to get a number of mandates that we have been able to execute upon.
The major mandate during the period under review was around the emergency road repairs funding which we raised for Zinara.
Out of a possible US$150 million, we were able to raise US$62 million for them. So for the future we think that the performance of the group will be positive.
Another area that assisted us in performing well is mortgage funding, we have been able to assist a number of people with mortgage loans, unfortunately during the course of the year we started experiencing difficulties because sellers of properties were now demanding either US dollar cash or cash in bond notes and not too many people are able to come across that mode of payment.
MC: You spoke about mortgages. To what extent have you been affected?
RM: Well, it has slowed down obviously because mortgages are not preferred by sellers of properties who are asking for cash or US dollars but for those that prepare to sell their properties in Real-Time Gross Settlement at mortgage we are assisting them with that. The introduction of the inter-bank (forex) market has also assisted in the sense that a number of sellers have released properties to the market and they are dealing at the inter-bank rate.
MC: You have floated several Zinara bonds before. I’m sure this last one was the least successful. What could have been the problem?
RM: The major reason obviously is around the dynamics to do with currency and interest rates. As you know, as at December 2018 inflation was at 42,09% but interest rates were way below that so we are in negative interest rates territory and that becomes very difficult to encourage people to part with their money, people were then looking at alternative asset classes and I think most of the money ended up finding its way to the stock market where the returns were much higher than on the money market.
MC: You have increased rates as the economic crunch continues. Please update us on this.
RM: We have increased our interest rates and our charges effective May 1 2019. We have already put out an advertisement of what the new charges will look like. Our minimum lending rate was 10% and we then factor in risk premiums. That minimum rate is going up to 12% with effect from 1 May and naturally for any borrower we assessed their risk and we then load that minimum lending rate with risk premiums.
MC: In this inflationary period, how have you been affected by these low interest rates?
RM: Naturally the impact is that your money is losing value and we would hope that indexed assets would be able to deal with this problem, but when you’ve got inflation of 66,8% indexing becomes quite a challenge because customers will not be able to afford those sorts of interest rates.
Salary levels are very low so I think we are caught between a rock and a hard place.
What we are encouraging our customers to do is to look at products that preserve value. We are in that space again where value preservation is critical, so we are going to property as a way of mitigating the effects of inflation that we are finding in this economy.
MC: What can you say about your non-preforming loans (NPLs) in relation to inflation?
RM: Happily our NPLs have come down to below 5%. We have worked very hard to reduce the levels of NPLs. In 2014 as you remember our rate was as high as 37% and over time we have worked on the quality of our assets. We have recovered from customers that were defaulting but also the Zimbabwe Asset Management Company has played a part in the sense that it assumed some of the risk. Going forward, we have tighten our risk management practices. Most of our loans now demand security upfront which is lended security in an effort to protect the depositors’ funds.
MC: Tell us about your Treasury Bill portfolio.
RM: Our Treasure Bill portfolio increased during the course of the year. During the course of this year, about half of that portfolio will mature. For the maturities that have already taken place, the government has been able to honour those maturities so we think that it is still an asset class that we have been considering in this environment. In terms of numbers, our Treasury Bills are standing at US$194 million as at December 31 2018, up from US$155 million last year.
MC: Are you looking at acquiring more Treasury Bills or you will dispose of what you have?
RM: We look at the yields, we look at the discounts. For primary issues if the yield is attractive, if it is better than what we get compared to lending to customers, we will certainly consider that as a proposition. As far as the discounts are concerned, the discounts are attractive and we will certainly look at acquiring those assets. What I can say to you at the moment is the market is somehow tight, it’s not easy to find Treasury Bills in this market at this point at time.
MC: In face of all this, what unique challenges is ZB facing?
RM: We operate in a sector and our challenges are pretty much the same. The major challenges are cost of doing business. Inflation has gone up and there are negative yield rates of interest which discourage savers from depositing money. I think we grappled with the issue of confidence in the banking sector. The authorities are obviously doing their best to ensure the confidence returns. I think also issues to do with currency are obviously of concern but we seem to be on a road to the resolution of some of these problems.
MC: What can you say about volumes of trade on the inter-bank forex market since its inception?
RM: I can only speak on behalf of ZB.
The volumes have been on the rise since the launch of the inter-bank market in February but, yes, we are seeing that not many sellers are coming to the market.
We have more buyers of currency, I think it probably speaks to the exchange rate and I hope the authorities are looking at that as customers tend to look at the other market and the inter-bank rate and there is too huge a disparity. But over and above that, the key issue in my view is supply. If the supply of currency increases, then we will be seeing an improvement.
MC: What is your comment on exporters, who are on record as saying they are not happy with the prevailing conditions on the inter-bank forex trading platform?
RM: As you know, we are building our exporters’ book as we have just come out of the American sanctions book in October 2016.
But for the few exporters that we have, they have been quite happy to dispose their money at the prevailing inter-bank rate. I have not experienced anyone who has been experiencing difficulties.
MC: What is your outlook for full-year 2019?
RM: That one is going to be challenging. Costs have gone up all around. The issue around currency being hindrance to business. Certainly for the foreseeable future we are the sector that will struggle. I’m hoping we are well on the road to resolution for some of the problems and I hope by the end of the year some of them will be resolved.