Financial services group, Old Mutual Limited Zimbabwe (OMZIL), says the tight monetary policy stance by the Government and the Reserve Bank of Zimbabwe (RBZ) premised on aggressive interest rates, could weigh on aggregate demand, levels of production and asset values.
Some of the measures include the increased bank policy rate from 80 percent to 200 percent per annum, minimum corporate borrowing rates were set at 200 percent per annum effective 1 July 2022, while the minimum time deposit rates were increased from 25 percent to 80 percent per year.
Samuel Matsekete, the group’s chief executive, during an analyst briefing on Tuesday, said while the measures have seen relative exchange rate and inflation stability, there are some downside risks to watch.
“The results of these measures has somewhat stabilised the environment in the exchange rate but also in terms of the pricing regime as it would show in average monthly inflation.
“There are, however, some downsides to watch and that is really, to ensure that we can still support the productive sectors,” he said.
He added that when borrowing costs are that high, it means that some operators may start to fail to fund their production lines and may fail to fund the requirements of raw materials as well as capital needs to sustain the level of production that they would have attained during this period.
“So that is something that need to be closely watched as the potential unintended consequences of the measures that have been adopted,” said Matsekete.
He noted that the Group also continues to see that there is need to fund demand for finance such as agriculture as the country is now approaching the 2022/23 pre-season.
“We need that chain being oiled through the financial arrangements that we see demanded by operators within that space,” he said.
Matsekete said the second half of the year up to next year will be characterised by election activities. He noted that if the period is not handled well, the country’s risk profile could increase and slow down investment growth.
“We think that it will be very important to ensure that this period is managed very carefully to protect the benefits of a stabilised economy and to ensure that people are confident to go about their business and support the growth we are projecting to see and the growth that we would like to see in some sectors.
“That is a key sensitivity that we will all be watching closely but we hope the corridors of policy makers will see this period being navigated carefully around,” said Matsekete.
However, Matsekete maintained a positive long-term view of the economy, underpinned by the implementation of measures to support the current stability.
He said the group’s lending and investment activities will continue to support the policy thrust to grow production, and exports.
“The economy has got significant opportunities and potential and our view in the long term remains positive. We see in the immediate to short term that some subsectors are continuing to register growth which is significant in some sub-sectors,” he said.
He added that there are sector-specific green shoots within the environment. “We, however, see some uncertainties which need to be addressed to underpin the growth in some areas especially on the policy thrust,” said Matsekete.
He noted that the Group can support the stability and support the economic sectors that are registering growth and support the economic players and businesses that are registering growth in their areas.
Matsekete said there are also measures that the group believe are supporting the different sectors of the economy, and if those are seen through, the economy should be able to get the stability for growth to be maintained as well as see growth that in some sub-sectors is sustained.
“The period we are getting into is the agriculture pre-season which need to be funded. It will be also important to sustain levels of production that need to be seen in the forthcoming season,” he said.
Matsekete said economic growth will be underpinned by the implementation of measures to support improvement in key economic sectors. He said consistency of key policies to foster predictability and stability in the economy mainly in the monetary and external sectors will be key to sustain the stability and growth.
“As we look ahead into the second half of 2022, we will continue to focus on adapting our offering to the evolving environment and customer preferences, ensuring that overall risks are kept within appetite in the wake of potential and emerging risks in both the global and the local market,” said Matsekete.
The Government’s tight monetary policy stance premised on aggressive interest rates has seen relative exchange rate and inflation stability. New assets such as gold coins have also enhanced market depth.
Matsekete said in pursuit of growth opportunities, the African Development Bank (AfDB) approved a US$7,5 million trade finance transaction guarantee facility to CABS.
He said this resulted in growth in lending and investments in renewable energy, agriculture, and other key economic sectors.
“An equivalent of US$16 million was deployed into alternative investment assets during the period while the stockbroking business continued to support growth of the capital markets and provide access to retail customers,” said Matsekete.
He noted that during the period under review, all Group companies are adequately capitalised and well positioned to support planned growth.
He added that the company expanded the breadth of services and functionality on MyOldMutual platform and continued automation of key processes enhanced efficiency and customer experience.
In terms of the individual line of business performance, the Banking division net loans and advances grew 30 percent to $78,4 million largely driven by USD loan book growth.
The bank’s profits were impacted by expense growth year on year and monetary losses as a result of a surge in inflation. On a historical cost basis, net profit went up 651 percent.
In Life Insurance, growth in policy holder funds was driven by growth in property values and alternative investments funds that posted above inflation returns.
Higher premiums were driven by client retention and new business acquisition including some denominated in USD.
“Results from operations impacted by lower returns on reserves as the capital markets returns were sub-inflation.”
On General Insurance, growth in gross and net premiums was driven by increased USD business underwritten in response to the need to preserve value under hyperinflationary conditions.
The group noted that currency translation distortions are real for the business for ZWL reporting purposes as over 70 percent of the revenue is now in USD.
The claims ratio increased from prior year driven by the fire and motor classes, but
the company noted that significant work is being done around fire prevention and suppression.
“The underwriting result was impacted by the claims experience mentioned above and to a large extent the currency distortions between the revenues and expenses,” the group noted.
On Asset management, Funds under management (FUM) growth was driven by above inflation returns on properties and alternative investments portfolio.
The group noted that it continued with efforts to diversify the portfolio into alternative investments, including forex generating property sectors.