Commercial bank earnings for Q4:18 nudged 29% higher to K346.3million compared to K268.1million (in Q3:18) according to an aggregation of prudential returns for all banks published in Africa’s second largest copper producer, Zambia. This defies analysts forecast of 30% decline after the unwarranted fee directive by the bank of Zambia. Non-interest income line ticked marginally higher by 2.5% to K867.56million backed by an 11% widening in interest income to K2.1billion from K1.89billion. Credit impairments narrowed 63% to K73million from K195.13million as interest expenses rose 20.3% to K598.4million from K497.24million
Performance leaders
Stanbic Bank Zambia led the PAT earnings curve with K73.62million in profitability representing a 12.38% rise compared to its K65.50million Q3:18 level. Rallying behind by a K21.62million widened margin was big strong reliable Zambia National Commercial Bank (ZNCB) at K51.99million, earning 7.89% higher than its Q3 PAT of K48.20million almost at par with aggressively mushrooming Indo Zambia (IZB) which successfully transformed its Q3 loss of K16.38million to a positive earning to K51.37million in third place. The Standard Chartered Zambia (SCB) earnings momentum seen in the first 3 quarters of 2018 eased 15.43% to K45.58million as Barclays Bank Zambia (BBZ) halved its Q3 earnings level in Q4 at K30.19million. Industry earning skew degree reveals that 67% of the commercial banks PAT resided in 5 out of the total 18 institutions.
Industry Non Interest Earnings rise marginally
Overall non interest earnings rose by an infinitesimal 2.5% to K867.56million from K840.23million in third quarter with key contributors being SBZ – K151.63million, ZNCB – K132.72million, FNB – K121.279million and BBZ – K119.23million. SBZ led this income line leveraging off its foreign exchange (FX) market exemplary and consistent leadership while ZNCB was the usual leader on the commissions, fees and service charge earnings lines taking advantage of the banking volumes.
Interest income widens
Industry interest income rose by 10.78% to K2.1billion from K1.89billion with key drivers being ZNCB – K327.57million, SBZ -K304.65million, BBZ – K302.04million and SCB – K237.59million. Predominant contributors on this income line is the ‘loans and advances’ representing credit extension capacity with ZNCB leading the race at K186million, SBZ – K181.52million and BBZ – K162.46million and SCB with K132.83million. The loan an advances numbers observed justify the balance sheet growth recorded by the contributor banks.
Credit impairments narrow
A very interesting balance sheet metric especially in an era of rising domestic arrears in the fiscal space. Industry impairments in the quarter narrowed by 62.5% to K73.25million from K195.14million with key drivers being SBZ with K36.92million (accounting for 50.3% of the aggregate quarterly number) offset by ZNCB with K14.45million in write backs in the quarter.
Interest expense rises significantly
Interest expense line widened by 20.3% to K598.41million from K497.25million with the highest contributors being ZNCB – K99.09million, BBZ – K85.52million, FNB – K71.60million and Atlas Mara -K70.09million.
Balance sheet growth
Industry wide balance growth was just under 1% to K82.1billion from K81.5billion. SBZ has the largest balance sheet at K14.612billion, a 12.88% increase in Q4:18 compared to BBZ at K10.69billion a 1.24% constriction and ZNCB at K10.54billion a 0.16% increase from third quarter levels.
Commentary
Given the rally demonstrated by SCB and BBZ in the first three quarters of 2018, the PAT earned by SBZ, IZB and ZNCB reflects very strategic posture for the subsequent quarters and years to come. The banking industry has demonstrated resilience given the unwarranted fee regulation effected in Q4:18 against all odds industry PAT soared 29% higher with most earnings lines outperforming. However concern around the impairment lines for most commercial banks seems questionable with only but a few banks taking real prudential stances to reflect the real credit profile of their respective books. This could be looked at from a credit risk rating perspective especially with the country rating downgrades in 2018 by Moody’s/Standards and Poor’s and Fitch to Caa1 (stable outlook)/B-(-ve outlook), which it is expected that financial institutions should reflect this in risk grading. Only a handful of banks in the lower 15% seem to reflect this which is an area the Bank of Zambia may wish to review. From the performance observed in Q4:18 very massive leaps should be expected from SBZ, ZNCB and IZB this year.
Compiled by the Business Telegraph Financial Analysis team. �?�<X