CBZ Holdings, Zimbabwe’s largest local financial group on Thursday reported a 32 percent drop in profit after tax to $23,7 million in the full year to December from $35,2 million last year and its Treasury Bills holdings doubled to $766 million.
Presenting company results on Thursday, finance director Colin Chimutsa said non interest income had contributed 43,4 percent to group revenue up from 34,3 percent in 2015 as the group tries to absorb the effect of reduced interest rates.
The central bank in 2015 directed banks to lower interest rates, which had been as high as 30 percent, to between 6 and 18 percent per annum, depending on the borrower’s risk profile.
“We are fully aware of the pressure on margins given the reduction of interest rates…we need to accept that margins of 5 percent are now difficult to achieve hence our focus on non-interest income,” he said.
The banking unit contributed $118 million to group revenue, with deposits going up 5,5 percent to $1,7 billion from $1,6 billion last year. Non-performing loans (NPLs) were largely flat at 6.6 percent compared to 6,9 percent last year.
Chief executive Never Nyemudzo said the bank would maintain ‘strict credit granting and closer monitoring of borrowers.’
Advances remained flat at $1 billion.
“We will continue with our cautious approach to foreign lines of credit as we watch the trends on the local interest rates to avoid pricing challenges, as such we have deliberately allowed some lines to run down so that we take advantage of repricing at the appropriate time,” he said.
The group’s building society and insurance businesses contributed $31 million and $9,7 million.
Total expenditure fell 6 percent as the group managed to review contracts with suppliers.
Assets increased to $2,08 billion from $1,97 billion, the majority being Treasury Bills which nearly doubled to $760,5 million from $471,9 million last year.
Analysts have warned that TBs being issued by the Zimbabwe government now carry a high risk profile as the state’s fiscal space shrinks.
With no access to foreign money, Zimbabwe’s budget is funded entirely through tax collections and has turned to the local market to fund its daily operations, with TBs as the primary instrument for raising the cash.
But Nyemudzo said the TBs were less of a risk for the bank.
“With the way local interest rates are going we are seeing in the short term a convergence where the effective interest rates on treasury bills will be lucrative than an ordinary straight loan because of reduced risks no provisions no tax,” said Nyemudzo.
“History has shown government’s capacity to settle both the capital and interest and at this point there is no doubt that we will not be paid.”
The Zimbabwe government is the second largest shareholder in CBZ Holdings, with 110,000,000 shares or 16.01 percent of the total issued share capital according CBZ’s latest report.
Earnings Per Share (EPS) were down to $4,53 from $6,52. The board declared a dividend of $3,2 million.