It’s tough for the smaller players in the banking industry in Zambia. Cavmont Bank has bared the brunt of competitive forces in the industry. In the 2014 to 2015 period, the customer lost 15% of its customer accounts in a zero sum that saw its competitors scoop them up. However, at the same time, it was able to grow its loan book by over 55%. This is indicative of a strategy that saw the bank looking to create value through its loan book. And it worked. Net interest income was up by 43% in the same period.
In terms of the banks performance, operating profit and EBITDA were up 19% and 17% respectively. Their return on assets was also up 1% taking it into positive territory for 2015. Loans to assets impressively increased by 11% to 56% signaling good strides by the lending team in a bearish market. However, net interest margin was down 3% due in part by the 68% increase in cost of sales for the bank.
Investors will be pleased by the numbers from the banks return on capital employed and equity. 2015 saw a 4% improvement in use of capital employed and equity which were both on par at 24%. However, due to the timing of the publication of the annual report (mid 2015), we anticipate that the 2015 to 2016 period was more difficult for the due to the macro measures that were put in place by the central bank. Tighter liquidity on the market means not enough resources available to pursue a loan book growth strategy. Furthermore, despite posting positive earnings in 2015, they still did not declare a dividend albeit is plowback of 1%. This is testing of shareholders patience.
Going forward, management will need to look into the operations performance. Operating cash flows nosedived by 130% leading it into negative territory. This was attributed to sharp increases in its payment to employees, suppliers and interest payments to customers. Furthermore, a little dividend never hurt anybody especially when it could mean continued financial attraction of shareholders.