eBusiness Weekly
Enacy Mapakame
Banking group, First Capital Bank (FCB) profitability for the financial year 2021, is expected to decrease as revaluations and net trading gains moderate owing to slowing annual inflation.
During the first half of the financial year, the business environment was marked by a more positive macroeconomic sentiment characterised by improved foreign currency availability as a result of the Reserve Bank of Zimbabwe (RBZ) auction system, which was introduced in June last year. As a result, annual rate of inflation moderated.
Lending rates declined in the first quarter of the year mainly for large corporate borrowers due to increased liquidity although interest rates continued to lag behind inflation.
Brokerage firm, IH Securities, therefore , sees the banking firm’s net income shedding off 16 percent of value for the full year, but remaining profitable.
“We expect a decrease in profitability as revaluations and net trading gains moderate owing to slowing annual inflation. Consequently, we forecast FY21 net income of $1,74 billion, down from $2,08 billion reported in FY20,” said IH Securities.
As the economic activity gradually improves on the back of improvement in the operating environment spurred by relaxation of Covid-19 restrictions, the banking sector is also expected to record an uptick for the full year and going forward.
This comes as the country expects a bumper harvest therefore increasing liquidity. The agriculture sector fuels the Zimbabwean economy accounting for about 70 percent of the raw material requirements for the manufacturing sector and employs about two thirds of the employable population.
“On this background, we believe transaction volumes are going to increase. As the spread between interest rates and inflation narrows, we anticipate that banks will continue growing their loan books as previously revenue was being driven by the non-interest income thereby changing the composition of revenue going forward and improving the loan to deposit ratio.
“It is our view that fair value gains on investment property and net foreign exchange gains will continue to soften on account of stabilising inflation. We believe that the bank’s drive to migrate services online will continue to pay off on changing consumer behaviour leading to expectation of extended growth in the fees and commission income line,” said IH Securities.
During the half-year period, FCB recorded non-interest income dwarfed net interest income closing at $1,3 billion at the end of the period against $517,92 million the same period in the prior year on the back of higher transaction volumes coupled with price adjustments.
Management made a deliberate move to leverage on digitisation which has yielded results as net fee and commission income closed the half year period at $564 million representing an increase of 428 percent from the previous comparable period.
The bank has recorded a revenue increase of 235 percent, while operating costs also ballooned by 286 percent to S1,2 billion on the back of inflation driven staff costs which were up.
IH Securities, sees costs continuing to increase despite management’s commitment to cost containment.
