Despite a solid third quarter performance as evidenced by the published prudential financial statements in the local press, Zanaco banks jaws velocity cost the big strong reliable bank second place on the industry profitability scoreboard.
Jaws is a finance ratio that measures the pace at which income moves with expenses.
Zanaco banks YTD earnings after tax grew 287.8% to K175.8 million (from K45.3 million a year ago). Quarter on quarter Zanaco bank doubled its after tax earnings to K78.6 million.
Drivers of the stellar performance was evident efficiency in the banks credit book portion of its balance sheet versus the quantum of interest income earned from loans and advances. Using this metric or methodology Zanaco’s loan book of K4.1 billion earns it proportionately high interest income portion compared with other top 5 banks with advances books as big as K5.5 billion. Given the size of the banks credit book Zanaco’s efficiency is higher than all banks in the industry however one would argue that the indigenous bank is Kwacha heavy compared to most international banks that have diversified risk to include heavy foreign currency lending. From an interest income comparability perspective Zanaco bank is at par with Stanbic bank in second place rallying behind Absa local subsidiary Barclays which led the interest income earnings curve that defied the odds after posting a yard (K1.02 billion) YTD.
Jaws velocity slowing earnings growth
If only Zanaco bank had leaned its non interest expense line by K37 million (gross terms), the big strong reliable banks would be rallying to second place on the industry score board after Stanbic bank. (This assumption is made on the gap between Zanaco and Barclays Banks). Year on year the bank has bullishly grown it’s total income base by 21.1% to K1.1 billion but the velocity at which costs were reigned in, weighed the banks bottom line costing it rightful place in the industry’s earnings rankings. Zanaco nonetheless settled for fourth position instead.
Year on year, the banks non interest expense line slowed by an infinitesimal 2.3% to K829.7 million from K849.16 million a year ago. Speculatively the non interest costs could speak to a ballooned wage bill from new hires, operational losses given control failures etc, separations which have been prominent in the Zambia markets this year. Whatever the case these costs are causing the requisite profitability growth inertia for the red bank.
Given growth in total income of 21.1% offset by a 2.2% marginal decline in cost growth in a suppressed growth environment with rising inflation, Zanaco bank performance is resilient and way above stellar. However the bank has immense potential to perform stronger than its third quarter position of it manages its jaws velocity.
The Kwacha Arbitrageur