ZBFH to focus on cost containment

Published: 25 March 2014

ZB Financial Holdings will focus on cost containment and operational efficiency as key aspects to delivering growth in FY14, CE Ronald Mutandagayi told analysts at the firm's inaugural analyst briefing held yesterday.

"Our strategic thrust is to make sure that the group's operations are more prominent with a lot of focus on operational efficiency whilst applying caution on the balance sheet where we will focus more on quality rather than quantity," he said.

Mutandagayi added that the group will focus on leveraging on the group's unique product spread, experienced human capital and technology.

He noted that the review of the business model is to be completed and the group will look at cost containment in order to leave a comfortable margin of safety relative to the revenue streams.

"We are of the view that the full implementation of ZimAsset and adequate funding of the plan may provide further growth going forward.

He noted that the ZB market share averaged around 5.3% last year as the industry's deposits have remained transitory in nature with more than 50% classified as short term.

Giving the financial highlights, FD Fanuel Kapanje noted that the group's total income went down 8% to $64.95 million.

"In terms of the financial performance of the group; unfortunately for 2013 the performance of the group was not that impressive and that's arising from a number of issues.

"The total income for the group decreased by 8% and in addition to that we've also experienced a 16% reduction in non-interest income on the back of subdued commissions and fees that are largely earned through the banking channels of the group. A lot of that reduction is also a result of the MoU that was entered between the RBZ and the banking institutions starting from the first quarter of 2013," he said.

Kapanje added that there was a reasonable increase in net insurance income on the back of increased business that was transacted during the period which was made possible by the increase in the underwriting capacity "particularly at the reinsurance company where additional capital was injected" during the course of 2013.

Operating expenses remained flat at $59 million while cost efficiencies ratio reduced from 85% to 91%. Meanwhile, the net profit margin closed at 1.34% versus 15.36% recorded last year and there was a substantial reversal in earnings in 2013.

Moving to the performance contribution by the business units, he indicated that the banking units "still contribute most of the profitability for the group and the profit potential going forward."

ZB Bank posted a profit of $0.8 million in 2013 from $5.6 million in 2012. NPLs went up from $15.7% to 17.5% at $28.9 million and Kapanje said they will implement "rigorous collection efforts on delinquent loans."

"But as you can see... we operated during the course of the year with limited budget…and hence the low profitability that's been posted. The profit margins for the bank was quite low; for the insurance it was fairly positive but that's trading off a small base whereas for investment banking we're still having a challenge with regards to the volumes that are being transacted in that business," he added.

ZB Building Society posted a profit of $1.96 million in the period under review, a reduction of 10% while the unit's total income reduced from $7.9million to $7.7 million.

Under insurance, ZB life Assurance's gross premium income increased by 9% to $7.4 million and posted a profit of $0.4 million against a loss of $0.4 million in 2012.

ZB Reinsurance's gross premium increased by 28% to $20.6million and posted a profit of $1.2million up from $0.8million in the prior period.

The group's total assets grew by only 1% to $$332 million and according to Kapanje that is also as a result of the 1% growth in deposits to $218.6 million.

He said loans to deposit ratio (LDR) reduced marginally at 61% from 63%, and according to him, it is a prudent level in view of pervasive increase in credit risk.

Total loans dropped by 2% to $133.8 million with the aggregated liquidity ratio amounting to 39% versus regulatory level of 30%.

"Total capital increased by 1% to $67million and aggregate capital is largely illiquid and inflexible and requires to be enhanced," added Kapanje.

He added that aggregated current ratio of 20% is still at a comfortable level for the level of risk underwritten.

Giving the outlook, Mutandagayi said lines of credit for ZB are likely to remain elusive and credit risk of the group is to remain amplified on the back of suppressed production capacity and weak fundamentals.

- zfn