As many businesses in Zimbabwe continue to grapple with a lot of challenges which are eating into their viability, it seems banks are doing well. A look at several banks’ profitability, return on equity (ROE) and other vitals shows that it is not all doom and gloom in that sector. In fact, for some banks, 2018 was actually a very good year business wise.
Ecobank Zimbabwe is one of the standout performers for 2018. Its net profit after tax rose by 80% to US$40 million as customer deposits doubled to US$800 million. In addition, it is clear that the performance of Ecobank Transnational Incorporated (ETI) in the Central, Eastern and Southern African (CESA) banking segment was strengthened by that of Ecobank Zimbabwe. CESA comprises of 18 countries, Zimbabwe included. Its total net interest income stood at US$207.28 million and operating income was at US$449.51 million. Of that, Ecobank Zimbabwe contributed US$49.3 million net interest income and US$80.4 million operating income. Return on equity for Ecobank Zimbabwe grew from 29% in 2017 to 37% in 2018. The target for CESA is to go over 20% ROE and it is a good thing that Ecobank Zimbabwe is already above that.
In its financial results for the year to December 31, 2018, Stanchart’s total revenue increased to US$69.1 million from US$62.8 million recorded in 2017. Its net interest income rose from US$29 million in 2017 to US$39.1 million in 2018. As a result, the bank’s profit rose by 38% to US$18.4 million. In addition, Stanchart’s bond and Treasury Bill stock increased to US$362.2 million in 2018, up from US$267.8 million in 2017. This translates to a 35.3% rise. As if that is not enough, total assets grew by 16% to US$948 million from US$816 million in 2017. These are impressive figures by any measure.
CBZ Holdings is also doing well. Their net interest income grew from US75.55 million to US$82.08 million. Non-interest income increased by 18.3% to US$108.12 million. Deposits rose to US$2.07 billion which is 12.2 % above the 2017 figures. The bank’s profit after tax increased from US$27.83 million in 2017 to US$72.17 million in 2018. CBZ’s asset base went up to US$2.44 billion from US$2.1 billion in the previous year. This growth is attributable to Treasury Bills which increased by 38% to US$1.21 billion.
The continuous impressive performance by banks at a time when the economy is going through a rough patch has led many to question how this is possible. Firstly, Treasury Bills (TBs) are playing a key role in increasing banks’ profits. Over the years, Government has been borrowing from the domestic market through the issuance of TBs. As such, banks see this as an easier way to make money and would rather go for TBs than normal loans. However, Finance and Economic Development Minister Professor Mthuli Ncube has already picked this up and has promised to deal with the issue by stopping the issuing of further TBs. It remains to be seen if banks will still make the same profits without the TBs.
Secondly, as more and more banks go digital and introduce self-service, this tends to free up bank employees to focus on other higher level tasks. This means that banks are now getting more out of their workforce, thereby making more. Stanchart is working on its full digitalisation this year and this is expected to increase their profitability further.
Another reason why banks did well is their footprint. Banks like Ecobank and Stanchart with a regional and international footprint tend to attract more depositors. This is because they are perceived to have a solid footing because of their presence regionally and internationally. In short, they are trusted more. They also offer easier international transactions as compared to local banks which often have to partner other banks in order to offer transactions across borders.
Despite remarkable performances in 2018, 2019 is likely to be a different ball game altogether. After several assurances that the local currency was at par with the US dollar and the two could be used interchangeably, the government shifted its goalposts towards the end of 2018 and asked banks to open separate FCAs for their customers. This dented the little trust that people had in the banking system. It also effectively eroded many people’s savings which were suddenly deemed to be local bond notes and electronic balances (now called RTGS dollars) rather than US dollars.
In addition, if the government successfully abolishes TBs, banks will have to look elsewhere for profits. Last but not least, if constrained activity continues in many industries, this is likely to reduce activity in the formal banking system as people opt to keep the little money they have in their houses. Deposits will dwindle.
It is a fact that most banks did well in 2018. Whether that performance can be replicated in 2019 is highly debatable. Time will tell.