NMB to pursue cautious lending

Published: 28 March 2014

NMBZ group CE James Mushore told an analyst briefing yesterday that the group will be pursuing a cautious lending approach in 2014.

"We will be focusing more on growth sectors. Agriculture due to the good rains received this season will be one of them whilst other sectors will be mining, distribution, construction, tourism and transport," said Mushore.

He however told analysts that they will adopt a selective and cautious approach even in these growth sectors.

Further to cautious lending, NMB will be aiming on new market segments. Mushore noted that they will be entering the mortgage business as a way of enjoying the tax exemption benefits.

"We will be entering this space but centering on the low cost housing for the lower end of the market. This scheme will see us trying to help in reducing the housing backlog in the economy," he added.

He also said that they were also setting up a leasing department within the bank.

"We like this business even after divesting out of African Century Leasing company."

Mushore emphasised that the divestment from African Century was "reluctantly" necessitated by the need to raise capital in line with the June 2014 $100 million capital requirements hence the need to re-enter the space.

With regard to the deterioration in credit risk, the group CE noted that non-performing loan (NPL) management was another focus area. NPLs for NMB stood at $38.7 million compared with $24 million in 2012 and June 2013 figure of $41.9 million.

"In fact, the figure peaked at $55 million during the year before coming down to year-end levels," added Mushore.

The NPL ratio was thus 19.9% compared with June level of 22.8%. "Our target through a number of measures is to stop the rot and reduce this to 15% by year-end."

"We will strengthen our Business Support Recovery System mainly through separating duties to do with loan origination and collection. In addition, we are setting up a credit management system by end of June to improve generation and management of loans, " he said adding that these measures would resultantly lower NPLs.

The manufacturing, distribution and services sectors accounted for 38%, 21% and 18% of total NPLs respectively.

"Worth noting is that these NPLs have not been generated now rather they refer to loans that were aggressively issued out early after dollarisation."

Mushore also highlighted that punitive rates on defaulting customers were the major reason why the NPLs figure had also grown higher.

"We believe this also worsened the situation and we believe we have made a mistake on that front by charging penalties on clients that were struggling already."

Of the NPLs, 69% was fully secured whilst the balanced was adequately provisioned.

Other focus areas are to meeting the $100 million capital and seeking other credit lines. Mushore noted that, "…we are happy and welcome the extension by the RBZ on capital requirements by 6 more years."

"Our ability to raise almost $15 million from foreign investors in 2013 increases our risk profile and we believe this will assist us in attracting further lines of credit." He said this after informing the meeting that they had managed to secure $74 million lines of credit since 2009.

Turning to product launches for 2014, he noted that aside from introducing asset-based finance and mortgage business they will be introducing Chip and Pin cards to increase security.

In 2013, NMB launched mobile banking, upgraded internet banking and use of Teller point of sales (PoS). "The use of teller PoS eliminated the usage of more stationery," he added.

NMB also introduced bancassurance which Mushore said "surpassed their expectations."

"We also were fully integrated in the EcoCash system after realising that if you can't beat them then join them."

Presenting the financial review, FD Benson Ndachena told the briefing that a loss of $3.3 million was recorded compared with a profit of $7.6 million mainly due to huge impairments.

Net Interest Income (NII) rose by 15% to $20.1 million whilst Non Funded Income (NFI) rose by 13% to $14.67 million. Net operating income however rose by 7% to $37.9 million according to the group FD.

Ndachena revealed that NII contribution was up 2% to 56% whilst NFI was "fairly" static at 40% for 2013 same as last year's levels. Foreign exchange gains accounted for 4% lower than 6% contribution recorded in 2012.

Operating expenses on the other hand were up 18% to $25.2 million. "…Impairments were the major cost driver after rising by 318% to $16.7 million compared with $3.3 million. $12 million of the total impairments related to loans that were written off," Ndachena added.

Overall, the cost to income ratio (CIR) excluding impairment was 67% compared with 61%.

Ndachena however told analysts that the 61% ratio had been boosted by fair value gains in 2012.

"Excluding these gains, would have seen the 2012 ratio at 66% therefore showing a largely unchanged position to the 67% recorded."

"We are still pursuing the 60% target for the short term and the 55% and below in the long run."

The capital adequacy ratio stood at 17.28% compared with 15.5%. He commented that the increase was a result of additional capital raised. "The ratio compares favourably to the 12% regulatory requirement and our own 13% internal limit."

Asset base increased by 15% to $259.5 million driven by the 25% growth in loans and advances to $181.3 million. "The increase in loans emanated from the additional capital we raised during the year," added Ndachena.

Deposits grew by 10% to $216.0 million.

He told the meeting that the loan to deposit ratio stood at 90% compared with 80% due to the mentioned additional loans. Gross NPLs rose to 19.9% from 15.7% whilst impairment provisions to loans ratio also rose to 6.0% from 4.8%.

"The liquidity ratio closed the year at 33% compared with 42% in the prior year," Ndachena added.

- zfn

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