eBusiness Weekly
Tawanda Musarurwa
With the tourism sector perhaps the hardest hit segment of the economy by the coronavirus (Covid-19) pandemic, financial services provider First Capital Bank says it does not expect defaults from tourism players to have a huge impact on its loan book.
“The tourism sector has been significantly impacted due to travel restrictions, with this sector contributing 4 percent of the bank’s loan book, the impact is expected to be minimal in the event of a default from this sector,” said management in a first quarter trading update.
“Clients constituting 6,5, percent of the loan book including tourism sector have requested for restructuring of their loan facilities and repayments, with the bank working with these businesses to support them as best we can.
“We have put in place measures to mitigate credit risk by conducting a complete review of our loan portfolio to ensure that we focus our support and attention on the right sectors and businesses.”
The bank had a positive first quarter as income rose on the back of an expanding loan book, but does expect the Covid-19 pandemic to have longer-term repercussions on its FY2020 numbers.
For the first quarter to March 31, 2020, the group said in inflation adjusted terms, income increased by 86 percent from $136 million to $253 million, while in historical cost terms total income increased by 85 percent from $115 million to $213 million.
The improvement on income during the period under review was also boosted by a one off foreign exchange gains of $20 million.
“The increase is largely due to increase in loan book in prior year quarter four, while the loan book remained stable in quarter one of 2020.
“Additionally, interest rates and prices increases effected towards end of quarter four of 2019 contributed significantly to the increase.”
However, the gains were somewhat negated by rising operational costs.
The financial services provider said operating costs during the quarter increased by 20 percent in inflation adjusted terms from $138 million to $166 million and in historical cost terms by 14 percent from $120 million to $137 million.
Profit after tax grew by 100 percent from a loss of $58, million to a profit of $59 million in inflation adjusted terms, while in historical cost terms the increase was 510 percent from a loss of $10 million to a profit of $51 million.
First Capital’s balance sheet growth over the first quarter was driven by Zimbabwe dollar loans which grew by 9 percent from $620 million to $673 million while the local currency deposits grew by 21 percent from $886 million to $1,073 million.
Foreign currency loans remained flat at US$6,8 million while foreign currency deposits declined by 10 percent from US$55 million to US$50 million.
The group’s total capital adequacy ratio at end of quarter remained flat at 25 percent, while the liquidity ratio was 58 percent compared to previous quarter of 55 percent.
Going forward, First Capital’s management expect to take a hit from the impact of the Covid-19 pandemic.
Zimbabwe imposed a lockdown to curb the spread of the virus on March 30, 2020 and the lockdown has been extended since.
“On a forward looking basis, the bank will not maintain quarter one performance in the short term largely due to the impact of Covid-19,” said management.
“Covid-19 will impact the business directly and indirectly. Due to the lockdown non-funded income for quarter two is expected to decline by circa 15 percent, whilst costs are also expected to increase from quarter two on the back of the costs necessary for Covid-19 preventative measures.
“There will inevitably be an impact on impairment, which is expected to materialise in quarter two onwards, with the full impact to be assessed.”
