Zanaco PLC – 2018 Performance Analysis
Banking, ZANACO plc

Corporate Bio and Ownership Structure

Zambia National Commercial Bank (Zanaco) Plc was established in 1969 to provide financial services to the Zambian economy and is now a leading Bank nationwide. In 2007, the Zambian Government sold a 49% stake to Rabo Development B.V. a subsidiary of the Cooperative Centrale Raiffeisen-Boerenleen Bank (Rabobank) of the Netherlands.  Subsequently, Rabo Development sold a 3.41% stake to Lizara Investments Limited, a nominee of the Zambia National Farmers Union (ZNFU), following the Bank’s Initial Public Offering in 2008 (Annual report 2017). In 2016 the Zambian government transferred its 25% shareholding to Industrial Development Corporation (IDC) to spearhead government’s investment. Moreover, on 30th June 2017, Rabo Development B.V. transferred its 45.59% shareholding to Arise B.V, which is a leading African Investment company backed by three reputable cornerstone investors namely Norfund, Rabobank and the Dutch Development Bank (FMO). Hence, it is important to note that Zanaco Plc still remains majority-owned by Zambians and is thus considered “citizen owned” (Annual report 2017). The current ownership structure of Zanaco is as follows;

SWOT Analysis

Recently, due to Zanaco’s leading bank and distribution network of more than 1.2 million customers in its 69 branches across the country. It has allowed it to sign a long-term Bancassurance partnership with Prudential Life Assurance Zambia hence diversifying its portfolio (Daily mail newspaper, Nov 2018). The partnership will enable the two companies to collaborate in developing and distributing market-leading insurance solutions to customers through Zanaco’s extensive distribution network. In line with Zanaco’s strategy of developing tailor-made value propositions that create more value for customers, this partnership will ensure customers are served with the right products and services that best suit their needs. Ultimately the partnership will also be vital in contributing to the development of a sustainable financial market and help drive the uptake of insurance products in Zambia (Abridged financial statement, 2018). 

Like any other business Zanaco is equally impacted by the various macro environment factors in the financial market in which it operates. For instance, on 1st January 2018 Zanaco adopted the International Financial Reporting Standard 9 (IFRS 9) which resulted in the company experiencing a loss and the shareholders fund reduced by 19%. Given the IFRS 9 financial instrument banks are required to make some changes to the way they do business, allocate capital and manage the quality of loans and provisions at origination. Therefore, as per Zanaco’s case they were faced with modeling, data, reporting and infrastructure changes in terms of enhancing coordination across their finance, risk and business units. Effectively addressing these challenges will enable senior management and banks board to make better-informed decisions, proactively manage provisions and effects on capital plans, make forward-looking strategic decisions for risk mitigation in the event of actual stressed conditions, and help in understanding the evolving nature of risk in the banking business.

Moving forward, Zanaco Bank Plc is well on its way to achieving its medium-term plan (MTP) strategic goal of being the Top Transactional Bank in Zambia.  It  is  assertively  well  placed  to  clinch  digital  developments  to  compete  stalwartly and alter the face of banking in Zambia. The constant improvement in the bank’s profitability, performance and incremental revenue generation capabilities provide a blueprint for obtaining effective and efficient market leadership.

Ownership Structure: Source Annual Report 2017

Operational Efficiency

The business performance for Zanaco has over the past two years being encouraging and has seen the Bank move from 5th position to 2nd position in the market based on its deposits and 1st based on its revenue generation capabilities. This has definitely reflected well with the implementation of the Medium Term Plan 2020 (MTP) and managements effective strategic choices. It is significant to note that the MTP aims to establish Zanaco as the top digital and transactional bank by 2020 hence providing a strong drive for continuous growth and development for 2019. Moreover, the MTP promises on further improving the banks processes, policies and functional efficiencies. This will definitely boost the banks’ balance sheet growth and revenue with the embedding of customer segmentation and value propositions been tightened. Predominantly, Zanaco has staidly focused on reducing its cost to income ratio as can be seen by its impressive performance in the prior years. Moreover, the focus for 2018-19 has been to further improve operational efficiencies to enhance overall performance through digitization of the branch processes and branding “as seen by the beautiful colorful rebranding in the various branches”.

Financial Performance

According to the 2018 abridged financial statements the bank recorded a 61% increase in the profit for the year from K114 million in 2017 to K184 million in 2018. The strong performance of the Bank is on the backdrop of a strong balance sheet. Net loans and advances increased from K3, 223.1 million to K4, 207 million representing a 30.5% increase. The associated credit impairments significantly improved from a charge to profit and loss in the prior year of K248 million to a relief of K17 million in 2018. This is attributable to the Bank’s focus on enhanced recoveries but also ensuring that quality assets are booked (Abridged financial statement, 2018).

In addition, the customers deposits increased from K7,455 million to K8,899 million which represented a 19.4% increase and the total assets increased from K9,543 million to K10,614 million. Due to the strong performance alluded to above the earnings per share increased from K0.079 to K0.127 representing 61%. Total income was broadly unchanged from K1, 438 million in 2017 to K1, 436 million in 2018. This is in spite of the revenue lost estimated at K60 million due to the Bank of Zambia driven cessation on unwarranted fees that were effected on 4 September 2018. Operational costs have increased by 18% mainly due to investment in business growth in line with the Bank’s strategy (Abridged financial statement, 2018).

Stock Performance

In 2018, the Zanaco security outperformed the LuSE’s All share index for the most part. However, a turn in fortune was evident towards the tail of 2018 where the security closed the year almost on par of the index. With the index gaining ground in 2019, the banks stock is currently under performing in comparison to the all share index. The stock has lost 24% of its value since June 2018.

Source Bloomberg Terminal

 

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