eBusiness Weekly
Tawanda Musarurwa
Diversified financial services provider, ZB Financial Holdings, continues to strategically spread its investments as the present inflationary climate weighs heavy on core banking operations.
High levels of inflation typically exacerbate performance volatility in the financial services sector, with rising costs affecting both businesses and households.
Zimbabwe’s year-on-year inflation hit an estimated 521,2 percent as at the close of 2019.
The annual rate of inflation is currently above 700 percent.
ZBFH says it has been moving to de-risk its investment portfolio.
“De-risking of the balance sheet continued through the acquisition of land banks, which provides a cushion against inflation,” said CEO Ron Mutandagayi in the company’s FY2019 interims report.
“Licensing for a micro-finance business in the group, which was expected before the end of 2019, was delayed and operations are now expected to commence in 2020.”
The increased acquisition of land banks is a proven strategy for ZBFH, which is already benefiting from its property associate Mashonaland Holdings; while the move to set up a micro-finance business is viewed as strategic due to expected increased demand for small personal loans as inflationary pressures continue to erode disposable incomes. Analysts at Morgan & Co say the bank is already benefiting from its expanded portfolio, particularly with respect to its 33 percent investment in Mashonaland Holdings.
“Interest income in the banking sector has been subdued due to depressed lending activity at the hands of eroded disposable incomes.
“Non-interest income (insurance, fees and commissions) has sustained industry performance but returns in this segment have suffered low margins as a result of the hyperinflationary environment.
“Despite this, ZBFH has continued to strategically hedge itself from inflation and maintain profitability through extensive exposure to property and its 33 percent holding in Mashonaland Holdings,” said the analysts.
The group’s FY2019 numbers show positive yields from its non-banking investments.
ZBFH reported earnings of $243,2 million as its share of profits reported by its associate companies for 2019, which was a significant upturn from a loss of $63, 5 million in 2018.
“The share of profits from associates is largely driven by the revaluation of investment properties which constitute the bulk of the assets at a significant listed investee entity, Mashonaland Holdings Limited,” reported the chief executive.
Consequently, the group posted a net profit of $433,6 million last year, a 467 percent improved outturn compared to the loss of $118,2 million in the prior year.
