Stanbic Zambia’s FY2017 Headline Earnings slide by 15.3%
STANBIC BANK ZAMBIAs FY2017 headline earnings slid by a margin of 15.34% to ZMW219.658million ($USD22.41million) from ZMW259.48million FY2016 according to Prudential Financial statements published in the press. Key drivers of this decline were a (147.9%) rise in credit impairments to ZMW77.5million, (7.64%) uptick in non-interest expenses, (5.4%) decline in foreign exchange income line and a (3.63%) widening in interest expenses offsetting a (5.67%) increase in interest income and a 7.44% rise in non-interest income – NnII.
Rise in interest income from investment in government securities
A 191% rise in interest rate trading income from securities to ZMW385million backed by 22.9% constriction in loans and advances were contributors to the 5.67% rise in interest income. Government securities – bills and bonds – priced off the Kwacha term structure of interest rates yielded gains reported in the financials. The bank paid ZMW17.64million more interest on deposits resulting in an overall 3.63% rise in interest expense reflecting expensive deposits – an autopsy of the 2016 liquidity crunch.
Fee income and commissions rises significantly as new core banking system improves collection efficiency
Commission and fee income rose significantly by a quantum of 18.78% to ZMW323.78million while foreign exchange revenues plus realised gains slowed 5.4% to ZMW229million. Fee and commission income rally is a reflection of the bank’s core banking system implemented in 2016 which helped with collection efficiency. Despite the decline in forex trading income Stanbic still remains market leader in treasury income. All non-interest expense lines climbed higher resulting in an above 7% widening in NI expenses.
Credit impairments erode Q4 profitability
The bank took on additional loan provisions totalling ZMW77.5million with 45.7% ( ZMW35.49million) in Q4: 2017. Quarter on quarter – QoQ earnings remarkably have slid by ZMW53.49million to ZMW29.68million a decline driven by a steep impairment number of ZMW35.49million accounting for close to half the bank’s annual provision base. The ZMW11.38billion balance sheet was able to generate an annualized Return on Equity ( inclusive of subordinated debt) – ROE of 13.55% compared to 19% in 2016 financial year. Despite the decline in head line earnings the bank still remains the biggest financial institution by asset size and takes third place in financial performance in a 20 commercial bank industry.
Balance sheet growth was 12.9% to ZMW11.8billion YoY from ZMW10.4billion.
Balance sheet growth was 12.9% to ZMW11.8billion YoY from ZMW10.4billion.
Market commentary
“The bank in 2017 positioned itself as a digital bank with e-commerce initiatives launched and has set up units that are self-service digital in prime areas such as shopping malls. Commitment to small and medium sized enterprises – SMEs is evident by the various events it undertook to include promoting of women business leaders through the Anakadzi banking product. The resilience, the institution showed to the autopsy of the 2016 power and liquidity crisis that drove cost of deposits high is evidence of a robust and well capitalised entity. However, the interest expense line still reflects expensive deposits in comparison to its peers. Cost to income ratio deteriorated to 73% compared to 63% the previous year. In a nut shell, the bank had a fairly good revenue run but was matched with a higher than usual expenditure side which when coupled with credit provisions resulted in the bank giving up its top slot to competition that saw it slide to 3rd place after Barclays and Standard Chartered banks. The market awaits to see Leina Gabaraane’s strategy in 2018 especially that he comes with a track record from Botswana after having worked as Chief Executive of Stanbic Botswana and Liberty Group. Historically – in a decade and half – we have seen an interesting pattern where Stanbic always rally’s to the top after sliding to third place for as long as the market can remember.”
Stanbic Bank remained committed to maintaining its footprint in mining, agriculture, construction and the small to medium sized enterprise sectors. Leina Gabaraane took charge of the bank as Chief Executive from Botswana around mid-January 2018 after Charles Mudiwa took up an appointment as Stanbic Kenya’s Chief Executive to head the 7thlargest bank in a 44 commercial banking industry.