Zimbabwe | ZSE

The year under review for the sector at large was characterized by a fragile macro-economic environment. Periodic restrictions and business lockdowns implemented by the Government and health authorities to curtail the spread of the COVID-19 pandemic dampened economic growth momentum. Yields on interest earning assets remained depressed in real terms as inflation picked up within the last quarter of the year. Despite this, net interest income for NMBZ posted a 346% growth y/y from ZWL$410.58mn to ZWL$1.83bn, supported by asset growth of 173%. Loans and advances surged within the period to ZWL$11.85bn from ZWL$3.73bn with a growth of 355% recorded in within the retail portfolio. The bank continued its aggressive drive to leverage on digitization of its services with fees and commission income increasing 259% y/y to ZWL$2.93bn. Resultantly, the Group recorded a 160% y/y growth in revenue to ZWL$6.94bn in FY21 from ZWL$2.67bn in FY20. Inflationary pressures largely driven by exchange rate deterioration increased the cost of running the business. Cost -to- income ratio consequently rose to 40.9% in FY21 versus 30.5% in FY20 as operating expenditures ballooned 249% to ZWL$2.84bn. NMBZ’s balance sheet remained resilient with strong inflows in personal and commercial deposits following the easing of Covid-19 restrictions (198% y/y) to ZWL$19.09bn. Demand for credit in the period remained firm with loans mainly with individuals and households at 28% (FY20 - 16%) and agriculture sector at 22 % (FY20- 23%). The Bank signed a US$15mn credit line with a developmental finance partner which is currently being disbursed in selected long-term projects in the agricultural sector. This is up and above another line of US$20mn from a regional funder which was fully utilized. Loan to deposit ratio for NMBZ improved y/y from 58% to from 67% whilst NPL’s in the period registered an uptick from 0.44% to 1.33%. The capital adequacy ratio of the banking subsidiary remained at 57% compared to a regulatory minimum of 12% and the banking subsidiary was able to meet the minimum capital of the equivalent of US$30mn. The Board has declared a final dividend of ZWLc38.61 per share. This brings the total dividend for the year ended 31 December 2021 to ZWLc43.61 per share. A detailed dividend announcement will be published separately.

The year under review for the bank was characterized by a fragile macro-economic environment. Intermittent restrictions and business lockdowns implemented by the Government and health authorities to curtail the spread of the COVID-19 health and social pandemic contributed to slowed down economic growth momentum. Yields on interest earning assets remained depressed in real terms as inflation picked up within the last quarter of the year. Total deposits grew by 90% y/y driven by a 279% growth in local currency deposits to an aggregate figure of ZWL$16.94bn. First Capital Bank reported a 244% growth y/y in interest income from ZWL$635.85mn to ZWL$2.19bn. Cost of funding remained benign in the period leading to a net interest income growing 282% to $2.15bn. First Capital Bank’s Loan to Deposit ratio greatly improved within the period growing to 42% from 27% in FY20 reflecting an increased risk appetite commensurate with a somewhat more stable monetary space. Loan composition however remained skewed towards short term loans due to the current transitory nature of deposits.

Notwithstanding a challenging operating environment characterized by local economic challenges and the Covid-19 related headwinds, the Group’s financial performance was defensive, benefitting from improved performance by all its business subsidiaries. In historical terms, net interest income surged 264.88% from ZWL$1.15bn in FY20 to ZWL$4.22bn in the period under review, underpinned by increased lending and improved interest margin. The Group’s digitalized infrastructure effectuated an increase in volume of transactions by customers resulting in net fees and commission income registering a 224.40% uptick to ZWL$2.27bn in FY21 from ZWL$838.66mn recorded same comparable period prior year. Net earned insurance premium was up 170% to ZWL$1.26bn from ZWL$469.15mn recorded in FY20, on the back of increased demand and revaluation of insured risks. The Group registered positive revenue growth across all its income streams, with the exception on foreign currency dealing and trading income which declined from ZWL$3.15bn to ZWL$3.10bn.

In light of the expected economic landscape, characterized by increasing inflation, we expect the ZSE to maintain its role as both a currency and inflationary hedge despite demanding valuations. We encourage investors to be highly selective on stock picking, potentially waiting for temporary weakness/profit taking to accumulate into quality names.

The ZSE once again outperformed regional stock markets in real terms, with returns of 123% (using the real effective rate); followed by the Zambian stock exchange, up 97% y/y. African stock markets closed the year on a positive note reflecting optimism about a global rebound from the pandemic and increased demand for commodities. Market capitalisation closed 123% up in real terms, from US$2.7bn in December 2020 to close 2021 at US$6.1bn. 

The year began with a series of transactions, some spill overs from prior year. CBZ obtained approvals at an EGM on 31 January to complete its proposed acquisition of FML. The transaction will result in the creation of a significant insurance and property cluster. Lafarge Zimbabwe Limited published a cautionary statement amidst newsflow of a potential disposal by anchor shareholder Holcim that has been exiting similar assets across Africa. We anticipate sustained corporate activity throughout they year, particularly consolidations as companies look to shore up balance sheets and earnings capacity.