‘NMBZ to maintain growth trajectory’

13 Sep, 2019 - 00:09 0 Views
‘NMBZ to maintain growth trajectory’

eBusiness Weekly

Enacy Mapakame

Banking group, NMBZ, is projected to maintain a growth trajectory for the full financial year 2019 albeit a tough operating environment.

Market watchers see the bank growing its earnings pushed by financial inclusion strategies such as the growing digital banking that seeks to bring ease of transacting and reach out to a wider market.

This is despite that the second half of 2019 and the greater part of financial year 2020, will likely present more headwinds for the banking sector tightening liquidity, rising inflation and the interest rate caps at sub-inflation levels posing some challenges including further capital erosion.

Brokerage firm, IH Securities, sees these and other factors posing more challenges not only to NMBZ alone but the entire banking sector.

“We expect the bank’s earnings to moderate in the post-FY19 as foreign exchange gains temper off on a relatively less volatile currency in the medium-term.

“Economic adversity is expected to persist and in the wake of monetary reforms that have eroded real capital and earnings,
the bank’s strategy to concentrate efforts towards financial inclusion through digital banking bodes well for the business,” said IH Securities.

Management at NMBZ have emphasised the bank’s focus on growing its fee and commission income to drive revenue growth through the deployment of mobile point of sale (POS) machines, digital enhancements and widening its market segments through financial inclusion.

The bank will go on a drive to increase its footprint through opening more NMB-Lite accounts and rolling out of the mobile-POS devices to the budding small to medium enterprises (SMEs).

As such, total income is seen rising 187 percent to $189,6 million by close of FY19, although inflationary pressures are anticipated to pose threats on earnings.

Operating expenses are also expected to increase due to inflationary pressures. Therefore, operating expenditure is projected to $49,96 million from $34,7 million which will translate to a cost to income ratio of 51,6 percent.

Said IH Securities: “We also anticipate an increase in liquidity from the salary adjustments of civil servants and the adjustments of pay as you earn tax brackets which will filter through a 47,5 percent year-on-year increase in deposits to $641,49 million in FY19 while loans and advances amount to $301,69 million from $263,44 million.”

Meanwhile, in the half year to June 30, 2019, NMB sustained profitability due significant fair value adjustments on property and investments from the translation of foreign currency balances to local currency.

In the half year to June 30, 2019 bottom-line growth was highly attributable to net foreign exchange gains which surged to $32,6 million from $1,11 million driven by the translation of foreign currency balances due to the change in functional   currency.

Net interest income only improved 11,5 percent year-on-year to $16,31 million during the half year while fee and commission income grew 45,4 percent year-on-year to $18,5 million compared to $12,77 million posted in the prior comparable period.

Total income grew 207,4 percent to $104,3 million mainly comprising fair value adjustments on investment properties, surged to $29,90 million from $1,49 million on change in functional currency.

Although the Reserve Bank of Zimbabwe (RBZ) removed interest rates caps, the banking sector as a whole is anticipated to remain under economic pressure as the sector may not have the capacity to sustain borrowing at current levels while minimum capital requirements are also expected to increase in line with the depreciating currency.

IH downgraded NMB to a sell recommendation.

“We update our recommendation to a ‘sell’ as the introduction of the local currency gives a clearer picture of the solvency and potential mismatches in individual balance sheets; whilst the increase in accommodation rate provides some interest rate direction,” said IH Securities.

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