In 2015, there was a change of leadership in the midst of a very difficult year for Investrust Bank Plc. Dr Jacob Mwanza (Chairman) said farewell to Friday Ndhlovu who retired as MD and was replaced by Dr. Chembe who unfortunately was taken ill on Christmas day 2015 leaving the board to appoint Mr Isaiah Chindumba to be acting MD. Three MDs in the same. Interesting. What was also interesting was the moment of shares between shareholders of substantial holding which lead to zero sum effect on share distribution that saw Mean wood Venture Capital Limited increase its stake to 25% in 2015.
As cited in our earlier blog on “Understanding How Banking in Zambia Is Impacted by the 6th Force in Michael Porter’s Model”, macro environment headwinds did not favor the bank in transition. The Chairman’s statement is indicative of a bank fighting on all fronts from restructuring to deposit mobilization, credit control and non-interest income.
Overall income from the amalgamation of net foreign exchange gains, other income, fees & commissions and interest income was down 4%. Net foreign exchange gains and other income were the biggest losers during this period. EBITDA and Operating dropped by 20% and 37% respectively.
Performance was mismatched. Although they recorded a 3% decrease in net interest margin and 4% increase in loan to asset ratio, shareholders continue to tighten their belts as equity was reduced by 64% largely due to the reduction in equity attributed to owners of the bank. Operating margin was down from 13% to 8%. Furthermore, this is the 3 year in a row the bank has reported zero earnings in their annual report with the sharpest dip being recorded in 2015. How much more negative does it get? However, despite all this, they manage to record an increase of 4% in their loans to asset ratio. Something to smile about.
The road to positive earnings may be a long one. At the moment, like all other banks, they need to quickly adjust with a strategy for navigating through the new macro environment. Improvement in non-current assets is a must. Signs of this are visible from the 2% increase in return on capital employed and the 5% increase in labor productivity (smart guys behind the bank). However, they have intentions of accessing further financing through rights issue. That means further dilution of shares. This course is normally taken when a company wants to be careful on how it accesses further financing for expansion purposes (gearing jumped from 22% in 2014 to 97% in 2015, so they will be cooling in that area): capital structure management 101.