BY TATIRA ZWINOIRA
THE Agricultural Finance Company (AFC) Commercial Bank, formerly Agribank, surpassed its target net profit to record ZW$308 million (US$3,6 million) in the first five months of the year driven by interest income.
The performance comes at a time when banks are making most of their profits from non-interest income as returns from lending in the inflationary environment remains uncertain.
“For the period ended May 31, 2021, the bank recorded a net profit ZW$ 308 million (which was way above budget). Positive performance was mainly driven by significant growth in loan book, hence more interest and similar income,” AFC Commercial Bank acting chief executive officer Elfas Chimbera said in a statement this week.
“The cost to income ratio for the year to date (including revaluation profits and losses) was 59% compared to a budget of 73%, while the staff cost to income ratio for the year to date including revaluation profits was 27% against a budget of 36%.”
He said the bank’s Tier 1 capital closed May at ZW$922 974 593, while total assets came to ZW$11 387 237 888.
Thus, at an official exchange rate of US$1:ZW$85,36, the bank’s Tier 1 position was US$10 812 729,53, however, the bank is on course to achieve the Reserve Bank of Zimbabwe (RBZ) requirement if it leverages off its assets which translates to US$133 402 505,71.
“The Reserve Bank of Zimbabwe reviewed the minimum capital threshold for Tier 1 banks to the equivalent of US$30 million by December 31, 2021 and equivalent of US$20 million for Tier II banks to ensure continued stability and soundness of the financial services sector,” Chimbera said.
As loans drove the performance of the bank, AFC Commercial Bank recorded gross loans and advances of ZW$4 135 162 636 (US$48,44 million) as at the end of May, about 100% above the December 2020 position.
The agriculture book represented about 55% of the total book as farmers look to benefit from better rainfall patterns in the current 2020/21 season.
“The loan to deposit ratio was 67,4% as at 31 May 2021 against a budget of 49,1% and compared to December 31, 2020 industry average of 39,5% as per RBZ Monetary Policy Statement of February 2021,” Chimbera said.
“The non-performing loan (NPL) ratio was 0,85% as at May 31, 2021 due to growth in the loan book and recoveries initiatives. The industry average NPL ratio as at 31 December 2020 was 0,3% as per RBZ Monetary Policy Statement of February 2021.”
The Agricultural Marketing Authority appointed the bank as its financial advisor for the AMA Agro bills allowing AFC Commercial Bank to raise ZW$100 million (US$1,17 million) in respect of those bills.
The bank also received ZW$500 million (US$5,85 million) facility from the RBZ with ZW$300 million (US$3,51 million) meant to fund winter wheat production and the remaining ZW$200 million (US$2,34 million) meant for productive purposes in other agricultural activities.
Chimbera said deposits were ZW$6 135 193 428 (US$71,87 million) at the end of the period under review increasing by 29% from April with the bank closing the period with a liquidity ratio of 64%, above the RBZ requirement of 30%.
The performance of the bank continues from 2020 wherein it posted an inflation adjusted operating income of ZW$1,994 billion (US$23,35 million) compared to ZW$1,396 billion (US$16,35 million) in 2019.
“The inflation-adjusted profit before tax for 2020 was ZW$238,9 million (US$2,79 million) compared to a loss of ZW$1,854 billion (US$21,71 million) loss for 2019. This was due to an increase in inflation adjusted operating expenses and monetary loss recorded in 2020,” Chimbera said.
On a historical adjusted performance for 2020, net interest income grew by 790% to ZW$281,8 million (US$3,3 million) in 2020 from ZW$31,7 million (US$371 368,32) in the comparative year.
“The bank’s lending portfolio increased by 632% from ZW$268,4 million (US$3,14 million) to ZW$2 billion (US$23,43 million) as it continues to pursue cautious asset growth with asset quality being a key priority. Non-performing loans were down to 1,38% as at 31 December 2020 from 3,70% as at December 31, 2019,” Chimbera said.
Meanwhile, non-interest income increased by 802% to ZW$496,3 million (US$5,81 million) from ZW$54,9 million (US$643 158,38) achieved in the prior year.
Total operating expenditure for the year amounted to ZW$747,2 million (US$8,75 million) in historical cost terms, representing an annual growth of 753% over the previous year owing to Covid-19 cost pressures.
“The bank declared a ZW$191 664 500 (US$2,24 million) dividend for the financial year ended 31 December 2020. This dividend declaration underlines Agribank being one of the few best performing parastatals that continue to give a return on the shareholder,” he said.
Speaking on its outlook for the current year, Chimbera said it was promising.
“The current tobacco selling season is expected to grow the bank’s foreign currency business. Inflation is declining, and when sustained, will result in a more stable operating environment. The foreign currency auction system continues to bring reprieve to industry whose risk and costs of acquiring foreign currency are now being contained,” he said.