BancABC to raise fresh capital for subsidiaries

Published: 27 March 2014

African Banking Corporation will be focusing on raising capital for its various subsidiaries and improve loan book management, group CE Doug Munatsi told an analyst briefing yesterday.

"We are actively working on a number of options to raise capital for all our subsidiaries. We have determined that all our subsidiaries must have a minimum of $50 million," said Munatsi.

He added that they will be working on raising capital for Tanzania and Mozambique to around $50 million whilst Zimbabwe and Botswana operations will be focusing on attaining the $100 million mark.

He said the issue of non-performing loans had two sides that is the systemic element due to tightening of liquidity mainly in Zimbabwe.

"Some of the blue chip clients are no longer blue due to worsening conditions in the economy."

The other element on NPLs is internal and Munatsi said the group will tighten internal processes in management of credit. He told the meeting that "significant level of funding and human resources" will be channelled.

BancAbc is also targeting growing market shares mainly in Mozambique and Zambia to the 5-10% target range.

"Cleary Tanzania requires a lot more surgery before we can begin to grow that market," he added.

"We see a lot of potential in growing our business both in terms of customer acquisitions but also harnessing our existing customers both on the retail and wholesale space," added Munatsi.

Other priorities include improving cost management towards 50% of income and developing other distribution channels.

"We have not invested adequately in some of these channels that is ATM infrastructure, Point of sale infrastructure, online banking and mobile banking."

The group may not necessarily invest in new infrastructure but rather try to leverage from the existing infrastructure as a way of growing income.

He said "…overall with these initiatives we see a very good year. It's not going to be easy as you can imagine but we are confident that we will be able to achieve growth."

Presenting a brief economic review across its operations, Munatsi told the meeting that the banking business fundamentals were growing "nicely".

In terms of market share he said, "…before 2008 our average market share was roughly 2% but after that when we went into retail we decided to growth them to 5-10%. In Botswana, we have 10% and we are very pleased to be on number 5. We are focussing on pushing all other subsidiaries to be in that range."

He also said that in Zambia though there were issues they managed to be on number 7 in terms of profitability. In Mozambique, market share was closer to 4% according to the CE but he highlighted that competition had ate some of their market share in the last 18 months.

For Tanzania, market share growth proved to be difficult as the regulator issued licenses like "mangoes in summer".

Presenting the operations review, group operations director Francis Dzanya referred the performance as exceptional despite the poor performance by Tanzania.

In reference to the jump in NPLs Dzanya also told the meeting that, "… we were struck by three significant hits in Tanzania, Mozambique and Zimbabwe."

BancAbc created 191 new jobs across the subsidiaries mainly in Botswana, Mozambique and Zambia whilst clients grew by 48% to 277 383 through attracting new clients.

He added "…in terms of loans, they ended the year at BWP10.5 bln with significant growth coming in from Mozambique corporate side and Zambia on consumer loans.

Deposits were at BWP12.2 bln with major contributors again being Mozambique, Botswana and Zambia."

Branch network increased by 10 to 73 branches and total ATMs were 74.

On divisional performance, Dzanya told the meeting that Botswana was the best performer with profit after tax growing from BWP94 million to BWP153 million driven by both net interest income from consumer lending and non-funded income.

Mozambique operations were disappointing according to Dzanya as PAT declined to BWP9million compared to BWP18 million. "This was a result of one major customer which is a construction company which has roots in Zimbabwe which went into serious problems and we had to provide for that," he added.

Tanzania remained a "problem child" delivering "disappointing" performance with operating expenses rising faster than income.

"Zambia performance was good with PAT rising to BWP50 million compared with BWP36 million. There was a good uptick in customers' numbers due to increased branch network as we are virtually now in all the provinces. Compliance to the new minimum requirements also supported this performance."

Dzanya told the meeting that Zimbabwe was the second best performer despite the election uncertainty.

"The performance was satisfactory with PAT growing to BWP118 million compared with BWP103 million."

He further told the meeting that impairments however more than doubled to BWP92 million due to tight liquidity.

"We see Zimbabwe in the foreseeable future having a high incidence of NPLs as a lot of companies are coming under stress. The NPL ratio for Zim was at 12%."

Turning to the financial review, group FD Beki Moyo said '… we are quite happy with the performance we attained. However there are some issues that we need to really really address."

Net interest income was up 50% to BWP1 bln. "We are happy with the growth as this is where we make most of our money from," added Moyo.

"Net interest margins before impairments where are around the 7.7% mark. Traditionally we have been in the 5% mark but the advent of retail has seen this growing."

Zimbabwe accounted for 39% whilst Botswana contributed 37% of net interest income. Mozambique, Zambia and Tanzania weighed in 12%, 8% and 4% respectively.

Non Funded income grew by 25% to BWP692 million with the lower growth relative to net interest income as a result of the adverse impact of the MoU on Zimbabwe operations.

Operating expenses were up 29% to BWP1.1 bln as a result of wider branch network and additional employees. "Cost to income ratio is trending down from 71% to 66%. Soon we would have entered the sweet spot of 50%," said Moyo.

"The one number we are really worried about is impairments. We are extremely unhappy. They grew by 137% to BWP328 million and in USD terms it is $39 million. This is such a huge number and we don't think there is any Zimbabwean bank that has actually pushed through such a number."

PAT at group level was up 49% to BWP198 million compared with BWP133 million.

"We are happy with the upward trend we are witnessing over the past five years," he added.

Moyo however told the briefing that Return on Equity was "fairly" static at 15% and this was due to the increase in shareholder funds coupled with the share conversion by IFC in the first half of 2013.

Turning to credit, gross NPLs stood at 9.8% compared to 9.2% in prior year whilst the credit loss ratio at 3.3% was up from 1.6% in prior year. Moyo referred the growth as "significant" and told the meeting that the increase meant they were now providing more on the NPLs than before.

Net NPL ratio was down to 4.8% from 6.1%. "This number is now improving as a result of increased provisioning compared to the prior year." The group was now more conservative as the NPL coverage ratios at year end stood at 55% compared with 36%. "The implied loss given default (LGD) rose to 45% compared to 27%," he added.

Moyo told analysts that 82% of the total impairments were accounted for by 3 entities Zimbabwe, Mozambique and Tanzania. In addition, 5 customers commanded 73% of total impairments.

"So it speaks to your single obligatory limits. We will be focussing on reducing such exposures going forward as a way of managing our NPLs."

Moyo also said they had come up with measures to address impairment issues. Increased credit management, reducing single exposure, improved documentation and security were some measures that will be implemented by BancAbc going forward. He added that they will also rely more on cashflows than security, character and the setting up of a special operations desk for the delinquent portfolio.

He said the group was well capitalised. Total assets were up 18% at BWP15.8 billion whilst loans and advances increased by 15% to BWP10.6 billion. Deposits rose by 14% to BWP12.2 billion.

- zfn