Zimbabwe’s banks in rude health despite tough economy

Zimbabwe’s banks in rude health despite tough economy

By Simbarashe Zishiri, HARARE, April 25 (The Source) – Zimbabwe banking sector is thriving despite the tough operating environment, with profitability and balance sheet significantly sound in the full year ended December 31, 2016, financial results from reporting banks show.

The analysis includes all banks except Steward Bank, which is yet to publish its financial results as it is a wholly-owned subsidiary of listed telecoms company, Econet Wireless, which is in its closed period in line with the ZSE listing rules. Econet has a February year-end and is due to report by May.

The review covers 12 commercial banks, four building societies and one savings bank.

Total income for the reporting banks increased by 5 percent to $766,8  million for the year ended December 31, 2016 relative to $729,9 million in the previous year on the back of a surge in non-interest income. Net interest income from banks’ core business did however decline by 4 percent to $381,4 million in the period from $397 million recorded in the previous year from reporting banks.

Building societies increased their contribution to total income to 16,3 percent compared to 14,91 percent previously while commercial banks’ contribution to total income declined to 79 percent in 2016 from 80,6 percent in the same period previously. Savings bank, POSB also increased its contribution to 4, 64 percent relative to the previous 4,5 percent.

CBZ, CABS and Stanbic posted the highest total income of $118,3 million, $101,7 million and $95,9 million respectively , which if combined account for 41,21 percent of the total income recorded by reporting banks.

Profits and more profits

Total profit after tax for the reporting banks increased by 37 percent to $165,9 million for the year ended 31 December 2016 relative to $121 million in the previous year.

See table below:

In the period under review, commercial banks increased their contribution to the earnings base to about 66,65 percent compared to  64,35 percent previously while building societies contribution to aggregate profit after tax declined to 27,52 percent in 2016 from 29,12 percent in the same period previously.

The average return on equity (ROE) and return on assets (ROA) of the reporting banks for the full year ended December 31, 2016 was 11,94 percent  (8,87 percent  in FY 2015) and 2 percent  (1 percent in FY 2015) respectively.

Excluding National Building Society (NBS), ROE and ROA improved to 13,57 percent and 2,46 percent respectively.

The improvement in profitability ratios was on the back of improved after tax profit posted by the financial institutions. All reporting banks posted a profit after tax for the full-year ended 31 December 2016, apart from the newcomer, NBS . NBS made a loss owing to set-up costs which outstripped income but the bank expects to record a profit in the current financial year since it is now geared for operations.


Total deposits from reporting banks increased by 16,8 percent to $6,2 billion as at December 31, 2016 from $5,3 billion recorded in the previous year.

Deposits remained concentrated among the bigger banks — seen as safer after a string of failed institutions, the last of which was AfrAsia Bank Zimbabwe in February 2015. Nearly 66 percent of total bank deposits in 2016 were concentrated in the top five banks (CBZ; CABS; Stanbic; Stanchart and Barclays), same as in 2015.

From the reporting banks, CBZ bank commanded the largest deposit market share of 28,03 percent as at  December, 31 2016, down from 31,17 percent in the same period prior year, while CABS and Stanbic followed with 13,65 percent and 11,34 percent, respectively. CBZ continues to maintain the lead on the back of aggressive deposit mobilisation.

Deposits were largely short-term, demonstrating the constrained capacity of the banks to extend the much needed long term credit facilities to various sectors of the economy whose demand for such credit persistently outstrips supply

Commercial banks’ share of deposits was 82,34 percent for the period, marginally higher than 80,67 percent in 2015.

Loans and advances

Aggregate bank’s loan and advances from reporting banks decreased by 4 percent to $3,29 billion in 2016 from $3,42 billion in the previous year. Lending by some major banks remains tightly focused with some declaring that they are prepared to lose market share in certain asset classes to ensure that loans are of an appropriate quality and margin.

On average, from the reporting banks Loan to Deposit Ratio (LDR) retreated from 76,46 percent as at 31 December 2015 to end at 57,75 percent  on 31 December 2016. The decline in the LDR in 2016 however indicates that banks are now reducing their appetite for lending amid heightened default risk given the increasingly tough operating environment.

Top five banks by loans and advances, commanded a combined market share of 65,97 percent compared to 62,65 percent as at 31 December 2015.

CBZ, CABS and Stanbic were most aggressive lenders in 2016 with a market share of 26,59 percent , 17,74 percent  and 8,32 percent, respectively, while ZB Building Society, Metbank and NBS were the most conservative lenders with 0,44 percent , 0,65 percent and 0,76 percent, in that order.

Loans and advances were dominated by commercial banks with a market share of 76,61 percent  (79,18 percent in 2015) of total loans and building societies had a market share of 20,72 percent as at December 31,2016  from 18,69 percent in 2015.


The total banking sector assets from financial results for the reporting banks grew by 16,32 percent to $7,9 billion as at 31 December 2016 from $6,8 billion as at 31 December 2015.

CBZ maintained its ranking as the largest bank in the country, with an asset base of $1,9 billion, nearly double the size of its nearest competitor, CABS which has a balance sheet size of $1,1 billion.

The top five banks in terms of total assets have 60,97 percent market share of the banking sector’s total assets and this high concentration of assets in the industry enabled them to maintain the lead in the sector as well as boosting their underwriting capacity.

Other key indicators

The average net interest margin (NIM) for the sector narrowed to 5.24 percent compared to 6 percent in the previous year. Agribank and POSB were the most profitable lenders in the period with NIMs of 12,69 percent  (10,38 percent previous year) and 7,44 percent (7,14 percent previous year) respectively.

Only the savings bank posted an improvement in net interest margin while both commercial banks and building societies recorded a drop in the key ratio. Commercial banks on average dropped to 5,14 percent from 6,11 percent while NMI for building societies decreased  to 5 percent from 5,41 percent and if excluding NBS, building societies NMI declined from 7 percent previously to 5,98 percent.

The industry’s average fraction of interest income to total income ratio declined to 49,5 percent compared to 57,67 percent recorded in the previous year on the back of  reduced lending which has the effect of reducing interest earned.

Agribank, with net interest to total income of 83 percent (77 percent in FY 2015) recorded the highest percentage, followed by NBS and Ecobank which had 80,6 percent and 62,4 percent respectively. Metbank on the other hand recorded the least net interest to total income ratio of 3,66 percent owing to a very low interest income it recorded in the period.

On average the cost to income ratio (CIR) for the reporting banks, excluding NBS decreased to 72,53 percent from 88,61 percent reported in the previous year, reflecting the success of cost containment measures undertaken by the financial institutions.

FBC Building Society recorded the lowest CIR of 41,2 percent .

However, NBS and Metbank recorded the highest CIR at 310,12 percent and 144,9 percent respectively, reflecting operational inefficiency as  their operating revenues fails to absorb operating expenses.

Treasury Bills

The sector has increased its Treasury Bill holdings as most banks view them as a better alternative to individual and corporate loans given the high credit risk in the economy.

On average, banks have doubled their TB holdings, reflecting their great confidence in the security, which in a well-functioning economy represents a risk-free investment. Banks such as Ecobank, Standard Chartered Bank and Agribank have increased their TBs holdings by 220 percent, 180 percent and 168 percent to $61,1 million, $135,7 million and $60,8 million, in that order. For Barclays, TBs accounted for almost 50 percent of the bank’s investment securities at $34 million. Banks maintain the stance that the government has and will always pay the TBs on maturity despite a tight fiscal space.

Non-Performing Loans

Most banks recorded a significant decline in non-performing loans in the period, benefiting from NPL disposals to the Zimbabwe Asset Management Corporation (ZAMCO). As at December 31 last year ZAMCO had bought bad loans worth $813 million resulting in a decline in the market NPL ratio to 7,9 percent by end of 2016, down from a peak of 20.45 percent in June 2014.

However, MBCA’s NPLs increased to 5,3 percent from 2,9 percent previously.

Additionally, Agribank’s NPLs are still high at 20 percent on the back of its aggressive lending.

Cautious lending and aggressive collections also contributed to the decline in NPLs in general.

Outlook: healthy but questions remain

The economic outlook remains uncertain as national savings continue to wane. The cash crisis will likely remain a challenge as low incomes growth and weak depositor confidence will continue to militate against deposit mobilisation from the unbanked population. The introduction of bond notes will discourage hard currency deposits as the banking public continues to struggle to access funds on demand.

In the face of challenging economic conditions and increasing cost of doing business, the debt repayment capacity of borrowers remains constrained, and this will dampen the risk appetite of banks to extend loans. The high rate of loans to individuals by some banks remains a concern.  The consumptive nature of individual loans does not bode well for economic recovery. Banks’ capacity to continue to drive down cost to income ratio (CIR) from reducing costs now seems to be improving, evidenced by the decline in CIR to 72,53 percent in the period under review relative to 88,61 percent in 2015. The industry’s loan-to-deposit ratio as at December 31, 2016 was 57,75 percent, showing less lending aggression than the 76,46 percent in the prior year.

All banks have maintained their capital adequacy ratios above the RBZ minimum requirement of 12 percent. The average capital adequacy ratio for reporting banks had significantly improved to 30 percent in the period from 21,39 percent previously.

Not all banks are likely to achieve the $100 million capital requirement by 2020 as stipulated by the central bank, since a number of them are still far below the target, despite all being above the current requirement.