Slow growth in the 18 commercial banking industry can be used a proxy of the prevailing tough economic conditions in 2018 compared to 2017. FY18 industry PAT grew at anaemic pace of K1.33billion driven by a faster growth in non interest expenses to K6,065million and a 29% widening in credit impairments to K722.76million offsetting a 4.57% growth in interest income to K7,531million and a 9.9% bullish non interest revenue growth to K3,554million. Interest expenses narrowed 20.6% to K2,038million.
FY18 PAT leadership trajectory
FY18 industry PAT grew by an anaemic 0.45% margin to K1,333million from K1,327million from 2017 compared to a 30% growth in 2016 from K1,020million. SCB was market leader at K267.38million (K286.85million), BBZ – K234.77million (K303.47million), SBZ-K229.54million (K219.65million). In the fourth and fifth place by a widened gap was BOC and Citi at K132.10million (K111.93million) and K129.18million (K165.09million) respectively. PAT for all banks in the top 5, on a year on year basis, deteriorated save for SBZ and BOC.
Eighty three percent (83%) of the industry earnings are skewed to 6 commercial banks.
Credit impairments rise
Provisioning for doubtful debts rose 29.4% to K722.67million from levels of K558.48million a similar pace observed in the 2016 – 2017 financial year when the number rose 28.99%. Key drivers of the industry number was SBZ -K167.67million, ZNCB -K132.57million, FNB – K145.77million with BBZ and SCB contributing K50.80million and K45.04million respectively. Biggest drivers of the doubtful debts were the agro sectors coupled in part by the new reporting standards dubbed IFRS-9 that provides for more stringent reporting.
Non interest expenses balloon
Most commercial banks according to the prudential returns published reflected a higher than usual non interest expense line. These grew by 15.89% to K6.06billion from K5.23million accelerating from 12.23% in the 2016-2017 financial period. Heavy weights on this line were ZNCB -K1.14billion, SBZ – K0.91billion, BBZ – K0.74billion, SCB – K0.64billion and FNB -K0.63billion. According to market intelligence this expense line was studded with corporate restructures, armotised investments in systems and legal human capital suits this in addition to other usual expenses.
Interest expenses narrow
FY18 revealed a 20.6% slow down in interest expenses to K2.04billion from K2.57billion a reflection of costs of deposits. Largest contributor on this expense line was ZNCB -K346.40million, BBZ -K271.69million, AtMar -K219.52million and SBZ/SCB almost at par at K185million respectively. The decline in cost of deposits reflects the term structure of Kwacha funding curves which eased in the first three quarters of 2018 but started to elevate in Q4:18.
Total income growth trajectory
Overall income grew by 13.87% to K8.32billion from K7.31billion a year go with SBZ leading the curve at K1.34billion, ZNCB rallying in second place with K1.29billion as BBZ took third place with K1.18billion. SCB earned just over a billion kwacha at K1.05billion.
Interest income rose 4.57% to K7.53billion from K7.20billion driven by a higher loan and advances number contributed by ZNCB -K1.22billion, SBZ -K1.08billion, BBZ -K1.05billion and SCB – K0.88billion. A major driver of the interest income line was loans and advances where ZNCB and SBZ were the most aggressive at K650.22million and K632.85million aligned with the balance sheet growth pulse observed. BBZ and SCB rallied behind with K531.44million and K515.96million. However credit growth grew at a slower pace in the 2018 financial year.
Other contributors to interest income line was investment in government securities where ZNCB reflected a more bullish earnings number of K553.85million as BBZ posted K480.25million. SCB and SBZ settled for third and fourth place at K359.49million and K291.33million. The securities income line reflects the interest rate trading strategy which ZNCB and BBZ outperformed the market, a significant improvement from the previous year.
Foreign exchange trading income grew 13.85% to K1.14billion from K0.99billion with SBZ rallying ahead of the market with K245.70million. SCB in second place earned K162.11million, a K14.92million gap from BBZ in third place at K147.08million as FNB earned K119.80million. International banks remain highly competitive in foreign exchange provision with the advantage of their parentage and SBZ has consistently topped the market in the area of FX trading.
Non interest revenue grew by 10.89% to K3.55billion from K3.23billion with the fee and commission line being the biggest earner. ZNCB leaped ahead of the curve with K499.09million, with SBZ rallying behind with K357.47million. FNB took third place with K328.69million as BBZ came in fourth place with K298.08million.
Booming trade finance activity
Off balance sheet items grew by a bullish 36% to K14.45billion from K9.95billion a reflection of growth in trade finance business precisely – letters of credit and guarantees. Largest drivers of this industry number were SBZ – K4.27billion, BOC – K3.36billion and BBZ – K1.1billion. FNB and SCB were just under a billion Kwacha. The trade finance business strong growth aligns with the infrastructure development projects ongoing in Zambia in addition to agriculture inputs which require structured trade products.
Compiled by Business Telegraph Financial Analysis team