NMB Holdings HY2019 profit before tax surges 533%, sets to broaden its target market, embrace e-channels further

By Published On: September 4th, 2019Categories: Corporate announcement, Earnings

NMBZ Holdings Limited (NMB.zw) HY2019 Interim Report

We have extracted a Chairman’s Statement from the 2019 half year interim report for NMB Holdings Limited (NMB.zw), listed in the Zimbabwe Stock Exchange:

CHAIRMAN’S STATEMENT

INTRODUCTION
The operating environment in 2019 was characterised by a multiplicity of monetary and economic reforms which significantly impacted the economic environment in which the Group operated in. The challenges experienced in 2018 persisted into the first half of 2019 largely characterised by a contraction of business operations throughout the economy, inflationary pressures and foreign currency shortages. On 22 February 2019, the Monetary Authorities introduced the interbank foreign exchange trading. The initial trades were at US$/RTGS$ 1:2.5 and subsequently, the interbank foreign exchange trading has been going through further refinements which have seen the interbank market being liberalized with more leeway being given to banks in the determination of the trading margin. As a result of these changes, the interbank trading has recorded significant increases in the volume of foreign currency traded and the rate has moved in tandem with these volumes ending at USD/ZWL 1:7 on 30 June 2019.

The underlying financial results (headline earnings) were largely driven by the banking subsidiary’s continued expansion into the broader market segment, a revision of lending interest rates and fees, a reduction in non-performing loans and cost containment measures. There were however, a number of fair value and translation adjustments which further improved the reported results: properties fair value adjustments and gains arising from the translation of foreign currency balances due to the change in functional currency from USD to ZWL. It must be noted that whilst all other foreign currency assets and liabilities were translated at the rate of USD/ZWL1:7 at 30 June 2019, legacy debts of USD18 049 918 due to various line of credit providers, suppliers and service providers were translated at a rate of USD/ZWL1:1. These legacy debts which are in arrears have been registered with the Central Bank and the ZWL equivalent will be remitted by the due date of 31 August 2019. We are guided by the Central Bank who have indicated that they will make the foreign currency available at USD/ZWL 1:1 to settle these obligations. We continue to accrue the applicable current interest on these foreign credit lines.

GROUP RESULTS

Financial performance
The profit before taxation was ZWL74 452 137 (June 2018 – ZWL 11 757 594) during the period under review and this gave rise to total comprehensive income of ZWL61 425 194 (June 2018 – ZWL 9 086 483). The Group achieved a basic earnings per share of 14.55 cents (June 2018 – 2.34 cents) and this translated into the headline earnings per share rising to 3.59 cents (June 2018 – 2.25 cents). The significant differential between the basic and headline earnings per share is largely due to investment properties fair value adjustments and gains arising from the translation of foreign currency balances due to the change in functional and reporting currency from USD to the new local currency (ZWL).

Operating expenses amounted to ZWL23 929 991 and these were up 42% from ZWL16 820 851 recorded during the six months ended 30 June 2018. The increased costs, which were contained below the general inflation rate of 176% for 30 June 2019, were due to higher transaction processing and operational costs arising from the bank’s digital drive and continued expansion into the broader market segments as well as general inflationary pressures.

The Group recorded an expected credit loss reversal on financial assets measured at amortised cost amounting to ZWL943 144 compared to an impairment charge of ZWL1 421 078 during the six months ended 30 June 2018 due to increased collection efforts on the banking subsidiary’s non-performing loans.

The Bank has continued with its drive to reduce non-performing loans (NPLs) and this saw the NPL ratio reduce from 7.43% as at 31 December 2018 to 3.38% as at 30 June 2019. The drop in the NPL ratio is largely due to aggressive collections and stricter credit underwriting standards.

Financial position
The Group’s total assets increased by 31% from ZWL527 067 596 as at 31 December 2018 to ZWL691 641 122 as at 30 June 2019 mainly due to a 182% increase in property and equipment, a 228% increase in investment properties and a 68% increase in cash and cash equivalents.

Investment properties increased from ZWL20 950 606 as at 31 December 2018 to ZWL68 619 531 as at 30 June 2019 whilst property and equipment increased from ZWL17 844 069 at 31 December 2018 to ZWL50 265 775 as at 30 June 2019 mainly due to the significant increase in property values in ZWL terms in line with market changes, coupled with the initial recognition of Right-of-Use Assets arising from the adoption of IFRS 16, Leases, on 1 January 2019.

Gross loans and advances increased by 0.4% from ZWL262 335 026 as at 31 December 2018 to ZWL263 435 295 as at 30 June 2019 mainly due to a