We have extracted the Chairman’s Statement from the 2019 interim financial report for GetBucks Microfinance Bank Limited (GBFS.zw), listed on the Zimbabwe Stock Exchange:
It is my pleasure to present the audited financial statements of GetBucks Microfinance Bank Limited (“the Bank”) for the year ended 30 June 2019. The year has been marked by numerous monetary policy developments that have significantly changed the operating environment in which we operate in. On 22 February 2019 the Reserve Bank of Zimbabwe (“RBZ”) introduced the interbank foreign exchange trading with rates initially quoted at 1USD:RTGS2.5 as a first step in liberalising the foreign exchange market. As at 30 June 2019 the rate had depreciated to 1USD:RTGS7. On 24 June 2019 Statutory Instrument (“SI”) 142 of 2019 was issued. SI 142 discontinued the multicurrency regime and brought back the Zimbabwe Dollar as the sole legal tender in Zimbabwe. In light of this development, the RBZ moved to increase the scope of bureau de change operators allowing them to buy funds for SMEs. In a bid to assist our clients and expand our product range the bank commenced bureau de change transactions in July2019. This has allowed the provision of services to hitherto clients out of our scope. The bank does not carry significant foreign currency obligations. The capital preservation strategy to purchase fixed property went according to plan and helped boost the Bank’s results.
The period has also seen a rise in the rate of inflation which has put pressure on the cost of business. The bank has responded by rolling out a low-cost business model ensuring that technology is used to service customer requirements. The cost of funding has increased as financiers seek to maintain the value of their money in response to increased overnight accommodation rates that were set at 50% per annum and recently increased to 70% per annum. These developments have put pressure on interest margins and cost to income ratios of the Bank.
The bank posted a profit after tax of ZWL$11.4 million (2018: ZWL$4.5 million). This growth was driven by higher fees and commissions on loans of ZWL$7.5 million (2018: ZWL$4.0 million) due to increased loan sales, and fair value gains on investment property of ZWL$8.5 million. Interest margin declined from the previous year due to increased cost of funding. However, the Bank achieved higher fees and commissions to counter the decline. Impairment allowance increased from ZWL$0.19 million to ZWL$1 million but the loan book quality was stable as impairment allowance remained 3% of the loan book. Operating expenses increased by 73% which is commendable in view of an operating environment where year on year inflation had been reported in excess of 176% in June 2019.
Total assets grew by 100% to ZWL$63 million (2018: ZWL$31 million) driven by an increased loan book of ZWL$37 million (2018: ZWL$22 million). This was due to the bank’s increased borrowings from ZWL$11.6 million in 2018 to ZWL$24 million. The Bank acquired property as a hedge and this increased investment property to ZWL$12.9 million (2018; ZWL$0.5 million). Cash and cash equivalents rose from ZWL$3 million to ZWL$8 million and deposits grew marginally from ZWL$1.9 million to ZWL$2.8 million. With a capital adequacy ratio of 67% against a minimum regulation of 15% the Bank is well positioned to continue its growth trajectory.
The Bank was adequately capitalized with a net equity position of ZWL$27.6 million. This capital position is well above the minimum regulatory threshold of ZWL$5 million for microfinance banks.
In keeping with our policy the Bank proposed and paid an interim dividend of 0.054 cents per share. Based on the results attained at the end of the year the Board recommends an additional and final dividend of 0.042 cents per share. This will bring the total dividend for the year to 0.096 cents per share which the Board recommends as the final dividend for the year ended 30 June 2019.
Corporate social responsibility
The Board and Management remain committed to improving the social well-being of the communities that we serve. During the period the Bank was involved in corporate social responsibility initiatives in education, sports and culture across provinces in the country. In particular, during the year the country experienced devastation from the effects of Cyclone Idai. As an institution we partnered with Lions Club to collect and donate clothes and foodstuff to relieve those in need.
Mr. G. Fourie, Mr. D. van Niekerk and Mrs. M. Manjengwah resigned from the board during the year and I would like to extend our thanks for their contribution. Mr. Paul Soko, who was previously our Chief Finance Officer, was promoted to Deputy Managing Director where he will handle the operations portfolio of the business. The Board welcomes Mr. Patrick Mashinga who joined the Board as Chief Finance Officer.
Functional Currency and Audit Opinion
In October 2018, the Monetary Authorities instructed financial institutions to separate bond notes and USD accounts and indicated that corporates and individuals could proceed to open Nostro Foreign Currency Accounts (“FCAs”) for foreign currency holdings which were now being exclusively distinguished from the existing RTGS FCA accounts. However,on this date a new currency had not been introduced as the USD remained as the sole currency. On 22 February 2019, the Reserve Bank of Zimbabwe (“RBZ”) issued Exchange Control Directive, RU 28 of 2019 which established an interbank foreign exchange market to formalise the buying and selling of foreign currency through banks and bureau de change. On the same date the RTGS dollar was introduced. On the same date, Statutory Instrument (“SI”) 33 of 2019 was also issued and it specified that for accounting and other purposes, all assets and liabilities that were in USD immediately before 22 February 2019 were deemed to be valued in RTGS Dollars at a rate of US$1: ZWL1.
The Bank used a fixed exchange rate of US$1: ZWL1 for the period up to 22 February 2019 resulting in non-compliance with the requirements of International Accounting Standard
(“IAS”) 21, The Effects of Changes in Foreign Exchange Rates, as doing so would have been in contravention of SI 33 of 2019. In light of the failure to fully comply with the requirements of IAS 21, the Bank’s independent auditors, have issued an adverse opinion on the financial statements for the year ended 30 June 2019.
The launch of our retail offering continues to be an important aspect of the business and is expected to generate new revenue streams. The Bank will focus on using technology to deliver these services and embedding its products with various retailers and service providers. The provision of financial services using technology continues to be the core focus of the Bank. The Bank is poised to roll out services through a low-cost agent model and take advantage of the opportunities arising from market liberalization of the foreign exchange market.
These financial results have been audited by Price Waterhouse Coopers Chartered Accountants Zimbabwe and the engagement partner was Mr. Tinashe Rwodzi. An adverse opinion was issued because of non-compliance with International Accounting Standard 21 (The Effects of Changes in Foreign Exchange Rates). The key audit matters were as follows:
- Expected credit loss assessment on loans and advances to customers,
- Hyperinflation accounting considerations.
The auditor’s report on these financial statements is available for inspection at the Company’s registered office.
I would like to thank our clients, management, staff, regulatory authorities and fellow directors for their contribution during the year and the achievement of these commendable results in a tough operating environment.
DR. R MBIRE