LUSAKA (The Business Telegraph) – First half after tax earnings for the Zambian banking industry shriveled 54% year on year to K379.6mln. This was due to a 119.2% spike in credit impairements to K690.7mln exacerbated by sovereign risk downgrades and COVID related credit risk concerns.
Credit impairments. Key drivers of credit provision numbers were First National Bank (K230.1mln), Standard Chartered Bank (K145.2mln), Absa Bank (K136.2mln) and Stanbic Bank (K131.1mln). It is about a dry point of construction that most international banks have had to adjust their impairment numbers to reflect sovereign risk posture of the country which was between 1Q-2Q20 adjusted lower for balance sheet vulnerabilities and amplified fiscal risks posed by disease pandemic transmitting into the commerce ecosystem.
Elevated funding costs. Interest expenses rose 36.3% to K1.94bln reflecting the cost of funding aligning with the elevated yield curve until May when the term structure of Kwacha interest rates has started to climb down on the shorter end aggressively. Should the inertia’s around the K10bln Medium Term Refinance Facility – MTRF be addressed more urgently, then banks will have an opportunity to reprice their cost of funds in the second half of the year.
COVID spend, restructures and other expenses. Non interest expenses ballooned 33.8% to K4.2bln reflecting some extreme cost to income ratio’s that signal an array of drivers to include COVID related spend, restructures as some banks trim down to lean costs and general higher operational expenses. Some cost to income ratio’s from key banks include Standard Chartered at 107%, Atlasmara at 85%, Zanaco at 80% and Citibank at 50%.
Revenue drivers. Total revenue expanded by a slightly slower pace of 12.8% to K5.1bln slowed in part by fee and commission lines that infinitesimally ebbed 3% to a billion Kwacha cushioned by a 57.9% jump in foreign exchange trading trading income at just under a yard in Kwacha. it is evident that the unwarranted fee directive by the central bank has eroded a traditional fee earning line while currency volatility was the key driver of foreign exchange trading income. Market leaders in the forex income lines were Zanaco at K196.2mln, Stanbic Bank at K185.0mln, Absa at K157.3mln and Atlasmara at K103mln making a debut against all odds.
Overall revenue leader was Stanbic Bank Zambia whose performance remained stellar on a YTD basis.
The disruptors. Second quarter winners were Indo Zambia with after tax earnings of K74.1mln, Atlasmara at K69.5mln and Zanaco at K45.1mln causing disruption in the traditional top 5 array. Indo Zambia has been a steady performer whose performance momentum is evident while Atlasmara’s amalgamation of BancABC and Finance bank is begining to bear fruit as evidenced by income lines.
For 2H20 we forecast margin compression due to falling yields on government securities and potential rate cuts in benchmark interest rate which slow revenue earning capacity.
*Industry results adjusted for Zambia industrial Commercial Bank.
The Kwacha Arbitrageur.
