African Century Limited (ACL) has been trading as a focussed leasing company since 2011. In 2016, the bank was licenced as a deposit-taking micro-finance institution, enabling it to offer a wider range of products while broadening its financing base. While the bank has remained active in the asset finance space, it says a shortage of foreign currency that has prevailed in the country for a decade has resulted in a slowdown in the asset finance business.
However, the bank is hoping that the challenges facing the country will be resolved to enable it to secure foreign lines of credit. Zimbabwe's leading leasing company, African Century Leasing, failed to access US$35 million worth of lines of credit from various external financiers due to challenges it faced in repatriating due loans. In its full-year 2019 results, ACL achieved total operating income of ZW$49,8 million, up from ZW$45,92 million from the previous year. Taking into account the loss on net monetary position, the company incurred a comprehensive loss of ZW$25,27 million, while in historical cost terms it achieved a comprehensive income of ZW$50,01 million. As the world grapples with Covid-19 and its economic impact, ACL is now facing the possibility of being unable to meet its loan book targets. This week, our business reporter Melody Chikono (MC) spoke to ACL managing director Stanley Matiza (SM) who bemoaned the tough economic situation, saying it is very challenging and thus difficult to ascertain what the future holds. Below are excerpts of the interview:
MC: In 2016, you got a licence to operate as a deposit-taking micro-finance house. What can you say about your experience in the micro-finance sector to date?
SM: The micro-finance industry provided us with an opportunity to interact with innovative entrepreneurs with great potential to be upgraded to SMEs (small and medium enterprises).
Most of our funders, including FMO Development Bank, Symbiotics and ResponsAbility are also passionate about supporting micro enterprises. We were able to mitigate credit risk to these sectors by being hands-on and staying close to our clients while providing an opportunity for them to access a full array of banking services.
MC: What conditions are needed for the micro-finance industry to thrive in Zimbabwe given the uncertain economic conditions?
SM: The country has already covered significant ground in providing an enabling environment for micro entrepreneurs and micro-finance institutions. Mobile banking is one of the key channels that have enabled micro entrepreneurs to efficiently do business as they have no time to go to the bank to transact while leaving their business stations unmanned.
The Reserve Bank has also put in place various funds which micro-finance institutions can access and on-lend to their customers for various purposes like agriculture, small-scale mining and manufacturing. One of the key areas that still require urgent attention is to access markets for SME products in order to secure competitive prices.
MC: What would be your comment on asset finance in Zimbabwe? What were the challenges you faced in this industry?
SM: ACL is still very active in the asset finance space as this remains our core business. As you may be aware, most equipment is imported. The critical shortage of foreign exchange facing the country has resulted in a slowdown in the asset finance business.
MC: Your results show an non-performing loan ratio of less than 1% when many entities have been struggling to attain such low numbers. How have you managed to keep the ratio so low?
SM: ACL stays very close to its clients and has a robust information communication technology system which enables it to manage its lease book while communicating effectively with clients when their instalments fall due.
MC: What are your prospects for the loan book in full-year 2020?
SM: Due to the negative impact of Covid-19 on the economy, it is now unlikely that we are going to meet our loan book targets. However, we continue to underwrite business with a strong bias towards the productive sector.
MC: You indicate that cost discipline remains key in sustaining bank operations in the outlook period. How do you intend to balance the high inflationary environment and managing costs?
SM: ACL has traditionally maintained a very lean structure and this has helped in maintaining costs. The bank is on a drive to go paperless, which will help cut down significantly on printing and stationery costs. The goal is to automate most processes and avoid costly labour-intensive manual processes.
MC: You had been saddled with a US$14,3 million foreign debt which you have offloaded to the central bank. What are the conditions that you have set to ensure that ACL will not accumulate such debts in the near future?
SM: ACL has maintained a very good relationship with its foreign funders who are still very keen to support the business once the economic conditions improve. We believe that current economic challenges facing the country will be resolved and ACL will again be able to raise foreign lines of credit.
MC: How do you see your balance sheet going forward now that you have no legacy debts?
SM: The resolution of legacy debt will make it easier for the bank to raise both debt and equity funding as we focus on the growth of the business.
MC: You spoke of widening your funding base, what other new initiatives are in the pipeline to realise your objective?
SM: The bank is talking to a number of institutional investors for debt funding. The bank is also expecting a capital injection from the main shareholder. We intend to issue a leasing bond by year-end.
MC: What is your outlook for turnover and loan book size?
SM: The environment is quite challenging and projections are very difficult to put forward. However, the bank is still disbursing loans to selected companies in the productive sector and we remain optimistic that our economy will turn around on the strength of the abundant natural resources that this country is endowed with.