Review of the Business Environment
The Covid-19 pandemic continued being a major trading impediment, affecting the financial sector in many ways. In spite of this challenge, Izwe Loans Zambia Plc “Izwe” continued to show strong growth in business results and customer numbers during the financial year of 2021.
Support through the Targeted Medium-Term Refinancing Facility (TMTRF) by the Bank of Zambia, coupled with the normalisation of collections, helped to sustain a reasonable trading environment especially in the second half of the year and Izwe was able to capitalise on this stability which increased demand for its products, culminating in record sales during the fourth quarter of 2021. The revived trading environment also brought with it heightened competition from both commercial banks and non-bank institutions.
Review of Financial Performance for the year ended 31 December 2021
The Directors are pleased to present the Company’s abridged audited financial results for the year ended 31 December 2021. The information disclosed in the SENS was derived from the information contained in the Audited Financial Statements and does not contain full or complete disclosure details.
Izwe’s performance in the year was a significant improvement on the prior year, driven by an increase in loans disbursed, a reduction in the weighted average cost of funding and a focus on strong management of operating costs. As a result, Izwe achieved a 128% increase in yearon-year profit after tax, from ZMW48.8 million in 2020 to ZMW111.2 million in 2021. Gross revenue incurred a marginal reduction of 4% when compared with 2020 at ZMW342.1 million.
This was due to the pass-on effects on product pricing following the access to concessional funding.
Operating expenses for the year reduced by 19% from prior year expenditure of ZMW123.4 million to ZMW100.2 million in 2021 as the business had begun to realise the benefits of its operating strategic changes that were introduced in the prior year. There was an improvement in the impairment loss on loans from an expense of ZMW8.4 million in 2020 to a credit of ZMW15.7 million in 2021. This improvement was largely driven by the improved collections from customers through Government remittances and an improvement in the underlying credit quality of our loan book. Foreign exchange losses reduced to ZMW13.1 million (2020:ZMW31.8 million), and this was due to the business’ decision to limit its foreign currency exposure and the appreciation of the Kwacha against the major international currencies.
The overall good performance for the year resulted in a year-on-year increase in Earnings Per Share (EPS) from ZMW0.47 recorded in 2020 to ZMW1.07 in 2021.
Net loans and advances grew 16% to ZMW712.1 million (2020: ZMW611.5 million). The increase in loans disbursed in the second half of the year, was the main reason for the growth in the earning asset. Borrowings and corporate notes increased to ZMW528.8 million from ZMW449.0 million in 2020 as the business drew additional funding from the TMTRF facility by the Bank of Zambia.
Capital
Izwe remains strongly capitalised with equity of ZMW271.9 million (2020: ZMW260.6 million), ensuring that the business comfortably exceeds regulatory minimum capital requirements and further provides a strong base to grow its earning assets through utilisation of retained income.
Dividends
During the year under review the Board elected to declare an interim dividend of ZMW100 million (2020: ZMW100.0 million) out of accumulated profits. The Board of Directors have elected not to declare a final dividend in respect of the year ended 31 December 2021.
Macro-economic Outlook
In its first Monetary Policy Committee Statement of 2022, the Bank of Zambia opted to maintain the policy rate at 9.00% p.a. after considering the deceleration in inflation which closed at 16.4% in December 2021. However, there are upside risks to the inflation outlook that include increase in crude oil prices and a looming change to a cost reflective electricity tariff.
The domestic economic activity is showing signs of recovery coming after the recession of 2020 occasioned by the adverse impact of Covid-19 pandemic. Real GDP is projected to grow moderately at 3.5% in 2022 underpinned by strong performances in finance, insurance, wholesale and retail trade as well as the mining sector. Having implemented new SME products in 2021, Izwe is well placed to leverage the new growth prospects, especially in the mining sector.
The Kwacha appreciated strongly towards the end of 2021 by 7.4% against major convertibles, supported mainly by positive sentiments after the Staff-Level Agreement was reached with the IMF. The rate is expected to trade at circa USD/ZMW=18.50 in the medium term, and is anticipated to strengthen further once the IMF support is concluded in mid-2022.