Nedbank Group says the hyperinflationary environment in Zimbabwe and foreign currency movements have not had material impact on its Net Asset Value (NAV) as the financial institution’s balance sheet is hedged against the twin evils.
Net Asset Value according to Investopedia, is the net value of an investment fund’s assets less its liabilities, divided by the number of shares outstanding. Funds can be open or closed and the pricing of each share is based on NAV.
During the first half of the year, Zimbabwe’s economy was characterised by high inflation and exchange rate volatility, resulting in a difficult operating environment for many businesses that resorted to many tactics for survival.
This, however, prompted the Government to come up with stabilisation measures that include a directive for all import duties to be paid in Zimbabwe dollars, except for luxury goods; the transfer of external payment obligations from the Reserve Bank of Zimbabwe to the Treasury; and the introduction of the wholesale foreign currency auction for banks.
Dr Terence Sibiya, Nedbank Group managing executive, Nedbank Africa Regions, said Nedbank Zimbabwe’s balance sheet is to some extent hedged against hyperinflation and currency devaluation through a US$ denominated open position, resulting in foreign currency gains of R665 million, offset by a net monetary loss R288 million.
“Hyperinflation in Zimbabwe led to a higher net monetary loss of R630 million. A weaker Zimbabwe dollar to US dollar (down 7555), a net US$ capital position, and hyperinflation accounting led to higher unrealised foreign currency gains of R1 029 million,” he said during a briefing on Tuesday.
He said a weaker Zimbabwe dollar to South Africa rand (89 percent lower) than the weaker Zimbabwe dollar to US dollar led to a negative other comprehensive income (OCI) adjustment in reserves.
Sibiya said foreign currency gains in Zimbabwe on US dollar capital because of currency devaluation, were partially offset by a higher net monetary loss, resulting in a net gain of R399 million.
“We have in place management actions that help us navigate and continue to operate profitably in the Zimbabwe market,” he said.
Sibiya said Nedbank has been in Zimbabwe since 1999 and has no plans to exit the country at the moment.
He said despite other challenges, such as hyperinflation, the group still sees long-term prospects for Zimbabwe.
“When you look at the GDP growth for Zimbabwe now compared to South Africa, it is much better.
There are specific sectors such as infrastructure and energy, as well as other areas like trade finance, that we think have opportunities for our business,” he said.
Sibiya said within the group’s regional operations, it sees tremendous opportunities in Zimbabwe and Mozambique, while the economies of the common monetary area, such as Namibia, will typically follow the trends of South Africa.
“Mozambique and Zimbabwe present tremendously faster growth, although in Zimbabwe, like we have said, we have to continuously monitor and roll out management plans to run and grow the business in a hyperinflationary environment,” he said.
He added that hopefully, after elections, there will be certainty around the currency, which will help the group in terms of consolidating group numbers.
Nedbank Zimbabwe managing director, Dr Sibongile Moyo, said for the half-year period, the bank doubled its return on equity, increased its cost to income, had liquidity ratios well above 100 percent and managed net-performing loans.
“The Bank managed to implement USD interoperability across all channels, particularly enabling USD transactions on our ATMs, mobile banking and POS terminals across the country and particularly with our ATMs because it involves Zimswitch capability to allow the entire market access to our channels for ATM withdrawals.
“We are in a challenging environment, but we have managed to grow the business,” she said.
Moyo added that the bank managed to have a capital buffer in the minimum capital requirement, which is above 30 percent, which enables it to thrive in a difficult environment.
The Nedbank Africa Region (NAR) business has operations in Eswatini, Lesotho, Mozambique, Namibia and Zimbabwe, as well as representative offices in Ghana and Kenya.
Nedbank Group also has a 21,2 percent shareholding in Ecobank Transnational Incorporated (ETI), which is a leading private pan-African banking group present in 35 sub-Saharan African countries.
The Nedbank Group headline earnings for the half-year period increased by 10 percent to R7,3 billion in a challenging operating environment and the return on equity (ROE) increased to 14,2 percent.
“The increase in HE was underpinned by strong revenue growth, including associate income, of 14 percent and good expense management, enabling pre-provisioning operating profit growth of 22 percent.
“This was partially offset by a 57 percent increase in the impairment charge, particularly in the retail consumer banking segment in South Africa,” said Nedbank chief executive Mike Brown.
He said the operating environment in the first half was much more challenging than had initially forecast.
In addition to a weak global economy and lower commodity prices, domestic economic activity continued to be negatively impacted by very high levels of load-shedding, logistical constraints, higher-than-expected levels of inflation and, as a result, higher-than-expected increases in interest rates.