HARARE – Zimbabwe’s largest banking group by assets, CBZ Holdings is likely to skate banking sector and macroeconomic challenges to maintain profit growth in the current financial year, analysts say.
The financial services group recently announced an impressive set of results for the financial year just ended, more than doubling net income to $72, 2 million from $27, 8 million in the prior comparable period.
Total income stood at $199, 5 million an increase of 14 percent over the 2017 figure of $175 million.
The local banking sector has over the past few months been blighted by inflationary pressures that have rendered inoperable the capping of interest rates at 12 percent.
On the other hand, the implementation of the 2 percent Intermediated Money Transfer Tax has in turn had an impact on transactional activity and in turn hitting financial services firms’ non-interest income.
But despite these challenges, analysts at IH Securities project a profit bump for CBZ Holdings, albeit not as strong as the 159, 7 percent jump for FY2018.
“We expect the group to maintain profit growth and have therefore forecast FY19 net income of $74,13 million, up 2, 7 percent from $72, 17 million reported in FY18. We expect a return on equity (ROE) of 21,4 percent for FY19, up from 24,3 percent in FY18.
“We now estimate that CBZ trades on PER (+1) 2.2x, and P/BV (+1) 0.4x to 2019E, compared to regional peers, at PER 9.8x and P/BV 2.5x to 2019,” said IH Securities.
The analysts however maintain significant challenges in respect of the local banking sector remain.
“Whilst the metrics appear attractive, we maintain a U/R rating on the banking sector as the severe dislocation between interest rates within the core lending business and current inflation remain a cause for concern. Additionally, the introduction of the RTGS$ as a currency exposes the banking sector to solvency risk, due to potentially significant mismatch between foreign currency assets and liabilities.”
Banks have, in particular, raised ire over the set interest rate of 12 percent (introduced in 2017), which they say has been overridden by inflation, and is now making it difficult for them to lend.
The Reserve Bank of Zimbabwe (RBZ) has however said it is going to uncap the interest rate by way of introducing a bank rate that will guide interest rates on the market.
A bank rate (or discount rate) is the rate of interest which a central bank charges on its loans and advances to a commercial bank. All things being equal, a higher bank rate will translate to higher lending rates by the banks.
Said RBZ governor Dr John Mangudya earlier this year:
“Once we establish the accommodation window, we shall come up with something called the bank rate. The bank rate will then determine the rates in the market; that’s how things are going to operate.”