Charity Lumpa (Chairperson) in her annual report for the 2016 makes a very bold statement that shows intent that ZANACO mean business. According to her statement, “the overarching priority in 2017 is to commence the initiatives required to place Zanaco in pole position by 2020 and making it a top universal and transactional Bank”. But before we get carried away with this statement, there is a small matter of transformation costs (K166m) that were imbued in the operating costs of 2016. An impairment of sorts that easily masks the true performance of the bank. Sadly, earnings per share dropped 74.1% from 2015 to 2016 as a result (in part). In addition, she points the finger at macro factors: weak economic activity, unstable financial markets and significant regulatory measures (Basel II adjustment).
However, we cannot allow this elephant on the profit and loss statement to sway us from what is clearly front foot strategy by the bank’s management team. When analyzing the Charity’s statement, we discovered (something that was camouflaged from our 2015 analysis) that the bank had embarked and implemented the Balanced Scorecard (BSC). According to the institute that administers this strategy, it is a strategic planning and management system that is used extensively in business and industry worldwide to align business activities to the vision and strategy of the firm (in this case ZANCO), improves internal and external communications, and monitors bank performance against strategic goals. In this case, Charity’s board and its management team set out corporate key performance indicators because they know where they want to be in 2020. Therefore, the K166.1m was spent on the output of BSC which included employee benefits for those that opted for exit (voluntary separation), IT costs and consultancy fees.
Through a targeted approach, it is clear that they have begun to see results of the BSC. 43% reduction in impairments losses recognized on loans, advances and other assets. 2% shy of its 2015 performance, the bank was still 5% north of the statutory 10% requirement from the Bank of Zambia (Basel II beaten). Net operating income up by 18% and debt down by 15%. Upon assessment of the latter, their 1 to 3 year tenure debt increased by 55%. Management of capital structure through acquiring longer term money.
Although Government and other securities were down by 28%, overall interest income rose by 18.5%. In addition, Customer deposits and total assets modestly rose by 3.7% and 2.9% respectively. Macro factors however, led to a 1.6% drop in customer loan uptake.
Shareholders will be pleased with the K1b that was added to their equity which represented a 3.9% growth in value. The banks return on capital employed rose from 57% in 2015 to 70% in 2016. Unfortunately, the board resolved not to pay a dividend at year end 2016. Interesting, the financials show that the 2015 declared dividend was only paid in 2016. So it was not such a bad year after all. Payment delayed is not a payment denied.
ZANACO enters 2017 with a clear strategy that involves harnessing their geographical footprint capital plus liquidity management, ensuring operational efficiency and prudence in risk management. They seek competitive advantage through technology. Overall, they are placing a huge bet on their transformation program.