FIRST Capital Bank’s (FCB) lending income grew by 48% in the financial year 2025, largely on the back of a 45% increase in customer deposits.
Non-funded income, however, shrunk by 26% because of lower foreign currency exchange revaluation gains and trading income. Fees and commissions, though resilient, struggled to cover the overall decline in non-interest income.
Operating expenses remained high mainly because of once-off retrenchment costs and realignment efforts. Associate losses further weighed on the bottom line which was 26% lower than prior year.
Loans-to-deposits ratio lower
The bank’s loans-to-deposits ratio was down seven percentage points in response to tight monetary policy that raised statutory reserve requirements. Cash balances, however, were significantly up because of an increase in customer deposits. A final dividend of US0,315c per share was declared, taking the total dividend for the year to US0,661c.
Forecasts: Upbeat macro-outlook
While lending income is expected to come under pressure in the financial year 2025, we do not expect non-performing loans (NPLs) to rise materially given the anticipated inflows from the agriculture and mining sectors.
We also add that payments in these sectors will keep fees and commissions elevated regardless of the central bank's push for low-cost accounts among banks.
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The accruing commissions will be key in cushioning against waning foreign currency exchange revaluation gains vis-a-viz a relatively stable exchange rate. We also expect margins to improve on lower operating expenditure in the financial year 2025.
Valuation
We revise our financial year 2025 price target for FCB upwards to US4,68c which points to limited upside potential. We maintain our HOLD recommendation. The ease in tight monetary policy stands as a key valuation trigger.
Regional peers were used to generate forward-looking multiples, and these were adjusted for differences in country risk.
In addition, a liquidity risk discount was applied on the grounds that the counter trades on an illiquid bourse.
Investment thesis
Tight monetary policy continues to bite into the banking sector’s lending operations given the decline in punitive interest rates and immediate term maturities.
We, however, do not expect NPLs to rise materially given the anticipated inflows from the agriculture and mining sectors that will grease the economy from the second quarter of 2025 onwards.
We also add that payments in these sectors will keep fees and commissions elevated regardless of the central bank's push for low-cost accounts among banks.
In FCB’s case, the accruing commissions will be key in cushioning against waning foreign currency exchange revaluation gains vis-a-viz a relatively stable exchange rate since 2025 began.
We also expect that post-alignment operating costs to be lower because of once-off costs incurred in the financial year 2024 as well as lower inflation-driven cost pressures.
- This article was written by Morgan & Co, a securities firm for a new era, whose local knowledge and expertise is twinned with international experience to grow the Zimbabwean capital markets.
