eBusiness Weekly
Nelson Gahadza
First Capital Bank (FCB) argues twerking policies to suit election narratives remains the biggest risk this year that could further deteriorate the operating environment.
Zimbabwe is due to hold general elections this year and the period in the build up to elections is considered volatile as incumbent Government may come up with populist policies that damage the operating environments.
Ciaran McSharry, the bank’s managing director, told Business Weekly, post at an analyst briefing on Monday that while there are already existing risks within the economy, policy inconsistency remains a major threat.
“There is a risk of association with the macroeconomic environment and risk associated with tightening of the liquidity environment both in terms of USD and local currency.
“However, the thing we worry most about is an election year. Policies may change to suit the election narratives, but policy stability is what we need and if we maintain the stability and stay the course, the economy will also rather stay on course,” he said.
Analysts believe economic activity is likely to be limited ahead of elections as investors apply a wait and see approach to strategic decision making.
In most cases, governments increase their spending while companies and investors slow down on their investments, hence policy uncertainty will linger to be prevalent whilst political risk will be elevated ahead of the elections.
According to Mcsharry, the tight liquidity stance within the market has resulted in greater demand for credit compared to supply.
The Reserve Bank of Zimbabwe (RBZ) has vowed to maintain a tight liquidity management framework, supported by the introduction of gold coins that are reported to have mopped up excess ZWL liquidity in the market.
However, in a recent Monetary Policy Statement (MPS) RBZ Governor, Dr John Mangudya, cut the bank policy rate to 150 percent from 200 percent per annum in response to a drop in inflation in a relief for firms that were struggling to borrow in local currency.
Mcsharry said loans to customers for the year ended December 31, 2022, increased by 85 percent, from $24,6 billion at the end of 2021 to 45,3 billion, reflective of an increase in credit appetite which, for many borrowers, was constrained by reduced absorption capacity when interest rates were reviewed upwards.
The bank’s loans to deposit ratio increased marginally from 44 percent on 31 December 2021 to 48 percent as at the period under review.
McSharry said during the year under review, lines of credit were negotiated with the European Investment Bank valued at EUR12,5 million and Afreximbank for US$20 million and are at varying stages of disbursement.
“The bank is looking forward to expanding this network in the year ahead,” he said.
In terms of the performance outturn, the group posted a 42 percent increase in total income, growing from $25,9 billion in 2021 to $36,7 billion in 2022.
“This was on the back of broad based performance improvement across all revenue lines,” he said.
During the year under review, net interest income increased by 37 percent following a 77 percent increase in interest earning assets and its contribution to total income, however, reduced to 34 percent from 36 percent in the prior year.
The bank posted a 25 percent year-on-year increase in fees and commissions, reflecting the impact of increased platform usage by clients and a 48 percent increase in the customer base.
Fees and commissions contributed 33 percent to total income, a reduction from 38 percent recorded in 2021.
The bank’s trading and foreign exchange income increased by 267 percent, contributing 31 percent to total income, up from 12 percent in 2021.
“This largely reflects the implications of the devaluation of the local currency at a level not fully captured in the inflation index. A fair value loss on investment property was posted at ZW$0.4bn, compared to a profit of ZW$2.8bn in 2021,” said McSharry.
The bank posted a profit after tax of $8,4 billion, being a 27 percent reduction from $11,5 billion achieved in 2021. However, operating profit excluding the impact of property valuations, increased by 57 percent.
Meanwhile, the total balance sheet increased by 55 percent from $104 billion on 31 December 2021 to close the year at $160,8 billion on 31 December 2022.
This was largely driven by a 66 percent growth in deposits, which moved from $56,4 billion in 2021 to $93,5 billion at the end of 2022.
McSharry said a new internet banking platform was launched during the year under review and offers a vastly improved interface and service spectrum to the bank’s customers.
He said a few teething problems were experienced at the time of migration and were resolved in short order.
He noted that an improved mobile banking application was also launched during the year with great appeal to the consumer banking sector.
In addition, the bank expanded its money transfer partner network resulting in improved general convenience for customers.
