Stan­dard Char­tered Zam­bia’s FY 2017 head­line earn­ings slow by 21%

Zambian Business Times - - FINANCIAL MARKETS - Busi­ness Times Lead An­a­lyst

STAN­DARD CHAR­TERED BANK ZAM­BIA FY2017 earn­ings nar­rowed by a mar­gin of 20.57% to ZMW286.85mil­lion ($USD29.27mil­lion) from ZMW361.09mil­lion in 2016, ac­cord­ing to pru­den­tial state­ments pub­lished in the lo­cal press. Key con­trib­u­tors were a 74.58% widen­ing of credit im­pair­ments, a 5.69% rise in in­ter­est ex­pense and 27% climb in non-in­ter­est ex­penses which off­set a con­tri­bu­tion of an 8.85% rise in in­ter­est in­come backed by a 2% de­cline in non-in­ter­est rev­enue.

Credit im­pair­ments jump 74% in Q4: 2016

Credit loan loss pro­vi­sions widened by 74.58% to ZMW63.695mil­lion of which 71.35% were raised in Q4:2017. Our an­a­lysts sus­pect, though with in­con­clu­sive ev­i­dence, that this could be linked to a Cen­tral Bank reg­u­la­tory re­view on ac­count of the tim­ing of the BOZ re­view com­ple­tion and the space in which the pro­vi­sions were raised. This pat­tern has been ob­served in key banks too. How­ever, it could be as a re­sult of pru­dent credit risk man­age­ment de­ci­sions to clean up a book in ad­vance for a clean 2018. These im­pair­ments were none­the­less higher than the usual quan­tum the bank raises. An ad­justed po­si­tion shows that Stan­dard Char­tered could have saved above ZMW25mil­lion in net in­come un­der nor­mal cir­cum­stances post­ing an over­all profit of above ZMW300mil­lion which the mar­ket an­a­lysts ex­pected.

In­ter­est ex­penses rise as cost of de­posits rises

Stan­chart’s ( yoy) in­ter­est ex­penses rose by 5.69% to ZMW302mil­lion on the back of a 7% uptick in cost of de­posits to ZMW292.49mil­lion. this could be pos­i­tively linked to an ag­gres­sive de­posit and li­a­bil­ity strat­egy whose strength of cor­re­la­tion is weak com­pared to its loans and ad­vances slowed 8.5% ( yoy) how­ever this can­not fully dis­missed. Stan­dard Char­tered banks bal­ance sheet was to some de­gree im­mu­nized from the ef­fects of the 2015/2016 liq­uid­ity crunch as ev­i­denced by our anal­y­sis for the first 3 quar­ters of their per­for­mance where the bank took a very cau­tious ap­proach to ex­tend­ing credit.

Non-in­ter­est ex­pense widens cost to in­come ra­tio

Non-in­ter­est in­come (yoy) widened by 27% to ZMW585.38mil­lion re­sult­ing in a 1,500bps (15%) rise in cost to in­come ra­tio to 60.5% com­pared to 45% in 2016. How­ever, this is one of the low­est CTI ra­tio’s in the in­dus­try af­ter Bar­clays Banks 58%. In­vest­ment in gov­ern­ment trea­suries scales in­ter­est in­come higher In­ter­est in­come was up 8.65% to ZMW1­bil­lion pro­pelled by a length­ened du­ra­tion in­vest­ment in gov­ern­ment pa­per that earned the bank a 50% higher rev­enue to ZMW400mil­lion. This is both from the trad­ing and avail­able for sale clas­si­fi­ca­tions tak­ing ad­van­tage of the Kwacha term struc­ture of in­ter­est rates. In­ter­est on loans and ad­vances eased 8.5% to ZMW596.1mil­lion from ZMW651.5mil­lion from in 2016.

Non-in­ter­est in­come flat

Non - in­ter­est rev­enue lines were flat with a 3.4% rise in fees and com­mis­sions to ZMW166.2mil­lion and a 12% plum­met in for­eign ex­change trad­ing in­come to ZMW150.35mil­lion Bal­ance sheet grew by 8% as ROE sides 18% Stan­chart’s bal­ance sheet grew 7.79% to ZMW8.73mil­lion and was able to de­liver a 32.9% re­turn on eq­uity -in­clu­sive of sub­or­di­nated debt- to its share­hold­ers com­pared to 180 ba­sis points lower at 50% in 2016.

Mar­ket note

“Stan­dard Char­tered Banks per­for­mance earned them sec­ond place and clearly we see that a 71% spike in credit pro­vi­sions likely due to reg­u­la­tory su­per­vi­sion pre­scrip­tion, eroded their bot­tom line cost­ing the bank over ZMW25mil­lion. How­ever, we see the same pat­tern with other com­mer­cial banks an­a­lysed: - rise in gov­ern­ment se­cu­rity in­come lines sur­pass­ing loans and ad­vances spell­ing a ris­ing ap­petite in trea­sury bills and bonds. Ar­guably this is crowd­ing out the do­mes­tic credit mar­ket. The bank records a rise in over­all in­ter­est in­come yet doesn’t do so well in non-in­ter­est line weighed by a de­cline in for­eign ex­change rev­enue which is dis­ap­point­ing for a multi­na­tional bank with a big trad­ing desk. The banks cost to in­come is fairly one of the low­est but rose 15% to 60.1%. Stan­chart has al­ways been known for keep­ing a lower than usual eq­uity po­si­tion that is re­flect­ing a 32.9% re­turn on eq­uity which has dis­ap­point­ingly de­clined 18% from what was posted in 2016. With the banks Q3:2017 our an­a­lysts ex­pected noth­ing less than ZMW340mil­lion in net in­come from SCB. How­ever in­creased pro­vi­sions and be­low av­er­age for­eign ex­change in­come num­bers cost the bank its top po­si­tion which it gave up to Bar­clays.”

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