17 August 2012

Zimbabwe: CBZ Holdings' Income Grows 17 Percent

FINANCIAL services group CBZ Holdings (CBZH)'s total income for the half year ended June 30 2012 grew by 17% to US$64 million from US$54,8 million, consolidating the group's domination of Zimbabwe's banking landscape.

A 26% rise in net interest income from US$33,6 million to US$41,4 million helped CBZ realize a 33,6% rise in net profit to US$18,3 million in the six months to June 30 2012.

Operating profit rose 12,5% to US$26,7 million. Net income stood at US$64 million, up 16,8% from the comparable period last year. The group declared a dividend of 0,132 US cents per share from a total dividend of US$903 071. The total dividend declared was up 10% from the comparative period last year.

CBZ Bank contributed profit after tax of US$18,2 million, which was 95% of the group's total bottom-line. Total assets were US$1,15 billion, while shareholders' funds were US$122,4 million.

Reflecting its new focus on growing alternative income streams to lessen reliance on interest income, the bank's loan book declined by 0,1% from US$790,3 million as at December 31 2011 to US$789,8 million as at June 30 2012. However, the year-on-year growth on loans and advances was up 25% from US$632,3million at June 30 2011.

CBZ is on record as saying the bank subsidiary would not grow its loan book by more than 5% this year. Group Finance Director Never Nyemudzo said the decline was in line with the group's strategy to grow liquidity and to look to other sources of income other than advances.

However, CBZ Holdings' latest results show that lending has remained a key revenue driver, with gross interest income surging 40% from US$48,3 million in the first half of last year to US$67,6 million in the current half year. Interest earned on overdrafts remained flat at US$37 million versus US$36 million in the comparable period last year.

Interest expenses rose 79% to US$26,2 million from US$ 14,6 million, after interest payable on money market deposits more than doubled to US$16,7 million from US$7,3 million in the prior comparable period.

This reflected the bank's heavy reliance on expensive short-term money market deposits in the first six months of the year due to the carry-over of liquidity challenges experienced at the tail end of last year. The liquidity constraints emanated from huge net outflows endured by the bank due to high value payments on behalf of government.

The bank's non-interest income remained flat at US$20,3 million in the period under review, compared to US$20,4 million in the corresponding period last year. This was earned largely from commissions and fees, which contributed US$9,6 million, whilst other operating income contributed US$9,3 million.

Commenting on the bank's asset mix, Nyemudzo said loans advances were down to 67% of the asset base from 76% in December. "The optimum level should be around 65%," he said.

Economic analysts say that under the current economic conditions, where there is no lender of last resort, banks in Zimbabwe should have a loan-to-deposit ratio ranging between 60% and 70% to balance the need for income against the demands for liquidity. CBZ Bank's loans to deposit ratio was 80,1%, down from 88,7% in March, and the liquidity ratio has improved to 33,15% as at June 30 2012, from 27,63% as at March 31 2012.

CBZ Group CEO John Mangudya said the bank's capital strategy would see it complete the merger between it and CBZ Building Society operations to focus on organic growth. The consolidation will enable CBZH to meet the new RBZ capital thresholds, as bank capital, which also included the building society, was at US$103,4 million as at June 30 2012.

In terms of capitalisation levels for CBZ Holdings' other operations, Insurance was at US$1,1 million, whilst CBZ Life's capital stood at US$1,6 million. CBZ's asset management company has US$1,2 million, bringing the total capital base of the financial services group to US$136,4 million, and making it one of the highest capitalised institutions in the country.

CBZH's banking operations will thus be fully compliant with RBZ's recently-announced capital thresholds for banks whilst the company should be able to comfortably meet any capital increases that will be set by Insurance and Pensions Commission (Ipec) for its insurance business.

Nyemudzo said with such a large capital base, nothing could possibly go wrong. He said the financial services firm's capital base gave the group the comfort to generate more business both in terms of lending and in underwriting more insurance business.

Nyemudzo said the insurance business had showed improved performance during the half year.

"Volumes grew in the insurance portfolio, with written business going up 52,4% to US$6,4 million, which is 84,2% of the 2011 full year result of US$7,6 million," he said.

CBZ Insurance had a marginal 7,1 % decline in net written premium to US$1,3 million. However, performance was expected to improve in the second half. CEO Mangudya placed CBZH's Insurance among the top 10 players in the market. The insurance arm would unveil a number of new products.

The CBZ group is planning to increase access to credit lines to reduce funding risk and extend the tenor and breadth of its funding, according to Mangudya. He said to date, the group had accessed more than US$180 million in offshore credit lines from various institutions such as the PTA Bank, Afreximbank and Shelter Afrique.

The bank had also structured the US$50 million Diaspora Bond. Mangudya said US$15 million of the funding raised so far was targeted at SME's.

Mangudya said the bank was also looking at longer tenor in its mortgage lending business. At the moment the bank was lending up to a maximum of 10 years, but with longer dated funding they would look to increase this.

On liquidity management, the banking group's new thrust leaves it placed to withstand the storms encountered at the end of last year.

Total expenditure was up 20,3% to US$37,3 million, whilst the group's cost to income ratio was at 58,3% . Coverage ratio excluding security was at 0,62 times.

Deposits had grown 18,8% this year and 21% year-on-year to US$985,7 million. Just above a quarter of the bank's deposits are sourced from financial organisations while 20% are government-related. The balance is from corporates and individuals and this includes the US$68 million diaspora bond raised last year.

The asset management business posted a loss due to the fluctuation of their proprietary book owing to the changes of prices on the stock market.

Nyemudzo said the income generated by the asset management company was in cash and the business was able to cover its fixed overhead costs within this income. The group would focus on developing offshore investments capability at Datvest by tapping funds offshore and managing them locally. The unit would also implement property-linked products.

"Unit trusts are working well and we are managing the wealth management quite appropriately. We are on the right track with our business model and we want to make sure that we consolidate everything within the group to make inroads into all the areas," Mangudya said.

Going forward, the group would be increasing the quality of earnings by diversifying its income streams and by looking at enhanced investment banking operations and making inroads into long- -term insurance.

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