Financial Performance Highlights
- Banking group NMBZ Holdings reported an inflation adjusted after tax profit of ZWL$12 billion, an 87% rise from the comparative period.
- The performance was driven by a 75% rise in total income to ZWL$41.9 billion as net interest income rose by 90% to ZWL$14.7 billion and non-interest income rose by 68% to ZWL$27.2 billion.
- The growth in non-interest income was supported by a rise in the total transactions processed from ZWL$170 billion in 2021 to ZWL$400 billion in 2022. In addition, mobile transaction volumes increased by 216% from 4.6 million in 2021 and to 14.7 million in 2022.
- The growth was also supported by a number initiatives implemented during the year, with the group launching an agency banking network partnership with Zimpost – allowing the service access for customers at over 100 nationwide Zimpost locations.
- The group’s Consumer Banking and Value-Added Services (CBVAS) unit, which provides digital banking, insurance and payments services. CBVAS contributed gross income amounting to ZWL$ 9.6 billion for the year.
- Operating expenses increased by 57% to ZWL$19 billion, with the group noting the adverse effect of inflationary and exchange rate pressures on operating costs.
- Net operating cash flows increased by 53% to ZWL$7.7 billion and net capital expenditures for the year stood at ZWL$22.8 billion.
- Total assets stood at ZWL$135.3 billion, made up of customer loans and advances of ZWL$46.3 billion, investment securities of ZWL$16.7 billion and cash holdings of ZWL$21.5 billion. The group’s loan book increased grew by 40% while the NPL ratio for the year stood at 1.09%. Customers from the Agricultural sector (26%) and Services sector (29%) made up the majority of the loans, while the share of individual customers declined from 29% to 18%.
- Total liabilities increased by 31% to ZWL$91.7 billion, with customer deposits increasing by 48% to ZWL$53.2 billion. Customers from the agricultural, services and distribution sectors made up the largest shares of the total deposits. Off balance sheet exposures stood at ZWL$743 million.
- Borrowings stood at ZWL$21.3 billion with the banking subsidiary owing US$ 13.8 million to various of creditors providers as at 31 December 2022. The group reported receipt of Government-backed zero-coupon Treasury Bills matching the amount owed to the creditors. The group also signed agreements for two credit lines during the year with the European Investment Bank for EUR12.5 million and Trade and Development Bank for US$ 10 million.
- During the year the group launched a new subsidiary focused in property development. The banking division also diversified its operations through the launch of a microfinance division with the aim of providing more focused services to individuals and micro businesses. A Technology Services division was also setup a and is expected to be additional source of foreign currency earning. According to the group, all the new businesses were capitalized organically and are adequately capacitated to pursue their strategic goals. The capital adequacy ratio of the banking subsidiary remained strong at 25.29% compared to a regulatory minimum of 12%
- Looking ahead, the Group will continue to pursue opportunities to diversify its sources of income and leverage on technology to optimize customer service delivery. The group will also prioritize raising further credit lines to fund export oriented productive sectors of the economy.
- The group declared a final dividend of ZWLc284 to add to the ZWLc45 interim dividend. The group also reported that it successfully completed a ZWL$206 million off-market share buyback following shareholder approval in May 2022.
Commentary and Analysis
Operating income growth at 63% against 57% growth in operating expenditures paints a less flattering picture than the headline 87% after tax profit growth to ZWL$12 billion. The income growth was primarily driven by interest income at 90%, with the group appearing to adopt a more aggressive lending strategy to exploit the higher interest rates. Growth in non-interest income arising from core operations was comparatively subdued at 48%, driven largely by growth forex gains, and retail banking fees – which aligns with the expanded customer reach through the Zimpost agency banking services. Interestingly, despite the groups focus on digital banking services, related income actually declined during the year – despite the sizeable rise in transaction volumes reported during the year. Growth in operating expenditures was driven by staff costs, which rose by 87%.
Short-term expectations are for the current local economic and political volatility to moderate the group’s lending activities, which may depress interest income in the new financial year. The agency banking partnership with Zimpost and exchange rate volatility would be expected to drive growth in non-interest income along with the property business. It will be interesting to see if the remaining draw downs on the EIB and TDB credit lines can be used to fund construction projects in the new business. On the other hand, global and local inflationary pressures will be expected to stress the groups margins, which will put an emphasis on the process automation and digitization initiatives that will be expected to deliver cost savings.
Looking long-term, recent trends suggest there is limited space for growth in the banking sector for the NMB group. The group’s share of industry deposits has generally been on the decline in the de-dollarized era, falling from a peak of 4% in 2018 to 2% at the end of the recently concluded financial year. There are signs that the banking sector is trending towards consolidation with the top-tier banks becoming increasingly dominant and lower tier banks getting the squeeze. It might become progressively important for NMB’s banking operations to find a “niche” to anchor itself on outside of retail and conventional corporate banking. The EIB and TDB hard currency credit lines could provide a platform for the group to significantly tap into the SME banking market. With the group’s focus on fintech, there is arguably scope to position NMB Bank as the choice banking partner for emergent businesses looking for innovative or specialized tech-based financial services. The move into the property business lines up with the need diversify and create additional growth centers. There is an apparent demand for attractive residential and commercial property developments, and the group appears to have some capacity- might be a bit late to the party though.
On the ZSE, since the start of 2023 NMBZ Holdings share has gained 71% in nominal terms and 17% in implied US dollar terms. The share is currently trading at a price to book ratio 0.4x despite the share buybacks – Harare