The first half of the year (H1) has come to an end so management teams across the banking industry are reviewing their strategies to determine how well they are performing against their annual budgets and whether they will meet their targets by year-end. Last week, the press released financial statements for the second quarter of 2020 (Q2 2020) and we review the top 5 banks as below. Before that, let’s start with a quick recap of the Zambian economic performance up to June 2020.
The Bank of Zambia projects negative economic growth of (-3%) by December 2020, with inflation continuously on the rise above the 8% target and major depreciation of local currency i.e. the kwacha trading around ZMW17, ZMW22 and ZMW1 against major currencies USD, GBP & ZAR respectively.
The Covid-19 pandemic has further contributed to the underperforming economy by exacerbating the headwinds mentioned above not forgetting external debt, reduced foreign exchange reserves and country downgrades by credit rating firms Moody’s, S&P and Fitch resulting in fiscal tightness and uneven balance-of-payments by the government.
Despite the turbulent economy as highlighted above, the banking industry showed vigilance in its performance as there were newcomers to the ‘top 5’ as never witnessed before nor expected:
- Stanbic Bank continues to lead the industry at half-year reporting (ZMW173m) PAT, with a leading country market share of 19% in terms loans and advances (ZMW6.5bn) and 18% in terms of deposits (ZMW14bn) thus standing out as Zambia’s largest bank, reporting a total asset size of (ZMW18bn) year-to-date (YTD). However, the bank reported a major increase in its impairments i.e. provisions for loan losses of (ZMW130m) in this quarter which reduced its profits substantially to (ZMW15m) only from (ZMW150m in Q1 2020).
Strategy wise – Stanbic continues to increase its books by lending to both Retail and Corporate clients with a focus on SMEs as its target client base in view of the Covid-19 pandemic. It is anticipated that Stanbic will close the year at the top as it has maintained consistent performance across revenue lines and income metrics.
- Indo-Zambia Bank came 2nd in the PAT marathon bagging (ZMW 111m) at half-year, (making ZMW60m) less main top rival Stanbic. The Indian bank topped the industry this quarter reporting (ZMW75m) worth of profits showing solid growth in all revenue lines and income metrics before provisions.
Strategy wise – This quarter, Indo showed a stellar performance winning in the fixed income securities field, with a positive uptake of government bonds by its clients. The industry will keep a close eye on Indo to see how the rest of the year unfolds for the Indian bank.
- Zambia National Commercial Bank (Zanaco) 3rd in the PAT marathon reporting at half-year with (ZMW98m) PAT, only ZMW10m less than Indo, with a solid market share of 14% for both loans and advances (ZMW4.8bn) and deposits (ZMW11bn), reporting a total asset size of (ZMW13) year-to-date (YTD). Zanaco reported the highest increase in terms profits at half-year with (ZMW950m) vs (ZMW840) at June 2019, highlighting solid performance in interest lines (fees, commissions and trading margins) however, Zanaco’s profits continue to be offset by its inflated cost line, reporting a cost to income ratio of 80% and (ZMW45m) worth of profits in this quarter, mostly owing to human capital and operational related costs.
Strategy wise – Zanaco continues to embark on its re-structuring journey, with the potential to perform even better if it’s restructuring phase results in a reduction in human capital and operating costs. The industry will keep a close eye on Zanaco in the next half of the year as a new dawn of leadership begins under incoming CEO, Mukwandi Chibeskunda, effective October 2020.
- Atlas Mara – The new kid on the block disrupted the usual top 5 order of performance ranking strongly at 04th place in PAT at half-year with (ZMW71m), after recording a loss of (-ZMW12m) in June 2019 – a 100% year-on-year growth, with (ZMW69.5m) worth of profits in this quarter alone second to Indo. Atlas Mara gave a solid performance in interest lines (fees, commissions and trading margins due to favourable TBill uptake) however, its profits were also offset by its inflated cost line, reporting a high cost to income ratio of 85% following an increase in costs post the Finance Bank/BancABC merger. The industry will keep a close eye on Atlas Mara to see how the rest of the year unfolds for CEO James Koni.
- Absa published (ZMW55m) PAT at half-year and (ZMW9m) worth of profits only in this quarter. Despite this, Absa had a decent Q2 performance, with a country market share of 19% in terms of loans and advances (ZMW6.6bn) and 15% in terms of deposits (ZMW11bn), rising to 02nd position after Stanbic reporting an asset size of (ZMW11.6bn). Unfortunately, Absa reported a high cost to income ratio of 75% due to impairments of (ZMW84m) and operational costs/expenditure during its transition phase from Barclays PLC.
The following industry participants made top 10 out of the 18 commercial banks in terms of PAT at half-year (June 2020); Eco Bank with (ZMW60m) at 06th position, Citi Bank with (ZMW39m) at 07th position, UBA with (ZMW34m) at 08th position, Access Bank with (ZMW15m) at 09th position and First Alliance Bank with (ZMW8m) YTD.
Other Matters:
- First National Bank (FNB) and Standard Chartered Bank (Stanchart) both recorded losses of (ZMW95m) and (ZMW225m) respectively as at June 2020 due to credit and risk impairment charges.
Strategy wise – With ongoing restructuring changes at Stanchart, the digital bank continues to strongly forge ahead in its digital journey as this global bank continues to lean on its investment in digital infrastructure to generate profits.
The remaining half of 2020 will be an interesting final stretch, with tough conversations taking place resulting in reassessed strategies. There isn’t any bank that will sit back to relax in this Covid-19 era as we strongly anticipate increased competition as year-end approaches.
Have a FIZ day!
