In the labyrinth of deteriorating sovereign risk concerns characterised by coupon defaults on dollar bonds and pandemic effects, Absa Zambia PLC is one bank that adjusted its credit risk appetite inferred from its first quarter financials for 2021. The second largest lender in Africa’s second largest hotspot posted 2.6% year on year growth of its advances book to slightly over seven yards in Kwacha terms corresponding to an infinitesimal 1.1% expansion in its advances income. It is likely that the lender did not take as bullish a stance on sovereign related strategic transactions i.e. the celebrated farmer input support program or alternatively the banks participation was at the expense of other higher yieldings lines but overall within fixed appetite.
Absa’s advances income to advances book size analysed at 11.8% reflected real asset valuation effect offset by currency depreciation and marginal growth in the local currency book while the duration income from investment in government securities to the size of the government securities at annualised 22.1% reflects appetite for one year treasury bills on a rolling basis. General market skew has been towards higher yielding shorter dated assets as players manage duration risks.
The lenders income lines showed softer momentum than usual in the quarter coupled with wider cost base and a higher credit impairment stock (than a year ago)resulted in an after tax earnings 32.0% rally to K59.5 million.
Interest income accelerated 24.0% supported by lengthened duration while non-interest revenue line grew 24.0%. The lender was able to contain interest expenses in check through a 9.0% leaner growth from previous year’s levels while non-interest expenses widened 32.0% on suspected management re-organisations related and associated settlements.
Absa’s first quarter cost to income ratio marginally ebbed to 59.0%, one percent lower than a year ago.
Cautious optimism remains a key theme for the Zambian economy as talks with the IMF progress while copper as a bellwether for economic recovery continues to signal stronger growth to come with Absa being the second largest lender is a key driver of.
The Kwacha Arbitrageur