ZBFH Stock Jumps 11% on 41% Profit Surge, Despite Cost Pressures

By ETimes

HARARE – ZBFH’s profitability for the nine months to 30 September 2025 is encouraging, with Profit After Tax (PAT) rising 41% year-on-year to ZWG610 million. This performance was reflected in its stock, which was the second-highest gainer on the Zimbabwe Stock Exchange on Wednesday, advancing 11.11% to close at ZWG400.0000c.

This growth reflects improved total income and a stronger contribution from non-funded sources.

However, while the increase is substantial in nominal terms, it must be viewed critically in light of Zimbabwe’s inflationary environment and exchange rate movements, which may overstate real growth.

The report attributes profit improvement mainly to the success of digital channels and fee-based services, rather than to traditional lending activities. This indicates a shifting income structure towards non-interest income, which is positive for diversification but also suggests limited growth in the group’s core intermediation function.

Total revenue rose by 75% to ZWG2.86 billion, underpinned by strong growth in non-funded income, which increased from ZWG1.43 billion in 2024 to ZWG2.12 billion. Non-funded income now represents a significant driver of profitability, with digital platforms contributing 62% of commissions and fees.

This mirrors successful digital transformation and customer adoption of electronic banking channels. However, the sustainability of these earnings warrants scrutiny — particularly given that 27% of non-funded income stemmed from exchange gains, which are non-recurring and highly sensitive to currency fluctuations.

Meanwhile, net income from lending activities showed only marginal real growth, revealing that credit expansion remains constrained despite new lines of credit. This muted lending performance could limit future interest income growth, especially if digital and transaction-based revenue growth plateaus.

The cost-to-Income ratio deteriorated from 64% in 2024 to 73% in 2025, signaling weaker operational efficiency. Management attributes this to once-off expenses, but the lack of clarity on the nature and size of these costs weakens the transparency of this explanation. The higher ratio suggests that rising administrative and operational expenses are eroding part of the revenue gains.

While the group emphasizes ongoing cost discipline, the efficiency gap highlights the need for tighter expense control and greater scalability of its digital infrastructure to maintain margins.

ZBFH’s Total Assets expanded by 24% to ZWG17.77 billion, driven by a 56% increase in cash and short-term funds. However, this liquidity build-up came at the cost of lending growth, with mortgages and advances declining by 11%.

This asset composition shift suggests a cautious credit stance or reduced loan demand, potentially reflecting risk aversion amid economic uncertainty. While this conservative approach supports liquidity, it constrains interest income potential. The group’s strategy to deploy new credit lines in the final quarter could rebalance this, but success will depend on prudent credit underwriting.

On the liability side, deposits and other accounts grew by 34%, reflecting strong customer confidence and effective retention strategies. This is a key strength, as it enhances funding stability and the potential for future credit growth.

The Group’s capital position grew by 14%, indicating healthy internal capital generation. Most business units remained compliant with regulatory capital requirements, except for ZB Building Society, which is below the minimum threshold. Management’s plan to consolidate banking operations under one license is strategically sound, as it can improve regulatory compliance and capital efficiency.

However, the report does not specify the group’s capital adequacy ratio or leverage metrics, limiting an independent assessment of solvency resilience.

OUR THOUGHTS: To enhance performance durability, the group should strengthen lending growth supported by effective credit risk management, improve cost efficiency to restore the cost-to-income ratio to below 65%, reduce reliance on volatile exchange-related income and provide greater transparency on capital ratios and cost drivers.