Banks continue to make the most of the prevailing economic environment, capitalising on the shift towards electronic transactions and high interest rate paying Government related investment securities.
As a result, profits for most banks have significantly increased with NMB Bank Limited being the latest to report double digit growth rates.
For the six months ended June 30, 2018, the Banking Group, which in the last few years changed its business model by expanding its customer reach, to a much broader market segment, reported a 42 percent growth in total income to $33,9 million from $23,9 million prior year comparative. Profit after tax for the period amounted to $9,1 million up 155 percent to $3,5 million.
Growth in earnings per share was much bigger up 152 percent to 2,34 cents from 0,93 cents prior year comparative. The Board decided not to declare a dividend in order to fund the growth initiatives being pursued by the Group as well as to strengthen the regulatory capital position of the Group’s banking subsidiary.
The bulk of NMB’s total income came from interest income up 22 percent to $18,5 million from $15,2 million prior year. The income line made a contribution of 49 percent in total income down from 55 percent prior year comparative.
Chief executive officer Ben Washaya, said the growth in interest income was driven by growth in loans and advances as well as investment in government related securities such as TBs and the RBZ’s Savings Bond.
“The high level of transactional activities, the increase in loans and advances, the increase in investment securities and the reduction in the cost of funds had a positive effect on our performance in the period under review,” Washaya said.
Loans and advances were up 8,57 percent to $228 million from $210 million in December 2017 with individuals getting a larger chunk of the loans at $86,6 million or 37 percent while services got $55,1 million or 23 percent.
The Bank has $99,7 million holdings in TBs and government bonds up from $92,2 million prior year comparative.
Analysts questioned the increased appetite for TBs at the expense the productive sector, given the expected change in government’s policy towards issuing less TBs, but management defended the position saying the maturity profile of its TBs will allow for time to adjust towards other areas.
Net interest income was up 37,7 percent to $14,6 million following a decrease in interest expense to $3,9 million from $4,5 million reflecting a reduction in the cost of funds and the shift towards cheaper demand deposits, which constituted 67 percent of total deposits.
Financial director Benson Ndachena, however, expects interest rates to start nudging higher amid competition from high interest paying instruments such as TBs and Savings Bonds.
NMB’s TBs holdings have coupons of between two and 10 percent, while savings bonds pay interest rates of seven percent. Washaya said if interest rates continue to head north, it will result in margin squeeze.
Fee and commission income contributed 44,5 percent at $12,7 million having increased by 61 percent from $7,9 million prior year comparative with significant contribution coming from retail banking customer fees, which went up by 62 percent and then corporate banking credit related fees up 107 percent year-on-year. Other income added $1,48 million while net foreign exchange gains added $1,1 million.
Washaya said the increase in fee and commission was a result of an increase in account acquisitions and deployment of more POS machines as well as enhanced e-channels.
In other metrics, non-performing loans (NPLs) were down to 6,12 percent as at half year ended June 2018 from 10,71 percent prior year comparative. Washaya said the Bank is targeting an NPL ratio of five percent by 31 December 2018 “which will be achieved through increased recovery efforts, write offs and the growth in the loan book.”
Impairment losses on loans and advances were 62 percent up due to the increased book and effects of IFRS 9.
There was a significant reduction in cost to income ratio to 56 percent down from 70 percent prior year comparative as a result of the 55 percent increase in net operating income which was higher than the growth in operating expenditure up by 23 percent.
“Administration costs were up 27 percent due to the effect of some capacity expansion costs, related ICT costs and some once-off costs. Staff costs were up 21 percent due to the activities to increase account numbers and costs not in the comparable period.”
The bank’s liquidity position was sound at 42,09 percent above the statutory minimum requirement of 30 percent.
Washaya said the results were achieved in an environment that was characterised by nostro funding challenges, cash shortages and inflationary pressures.
Going forward, Washaya said economic reforms and continued re-engagements with the international community will be key.