CBZ Holdings (CBZH) is projected to cash in on the anticipated economic boom that will be driven by strong agricultural and mining performance.
Increased economic activity is expected in the country as the Covid-19 induced lockdown and restrictions continue to be relaxed.
Already, pockets of growth have been seen especially in the retail sector following gradual relaxation of restrictions.
Zimbabwe has implemented various levels of Covid-19 induced lockdowns and restrictions since March 30, 2020 to contain the spread of the pandemic in the country.
As such, given the growing economic activity currently ongoing across key sectors, analysts IH Securities see CBZH maintaining its growth trajectory as the banking group continues to tap into the improved economic activities, including agriculture and mining.
In the first half of 2021, the agri business segment made up 60 percent of the CBZ’s loan book.
The loan book was primarily short-term with 90 percent of loans maturing within a period of 12 months, in line with the financial sector’s cautious approach to long term lending.
“Economic volatility to boost non-funded income given the positive economic outlook on the back of a bumper harvest and relaxed Covid-19 lockdown restrictions, the group is likely to further increase its participation in the key business of lending.
“The agricultural sector might remain a key focus area given the bank’s drive to support Government initiatives in the sector.
“We therefore forecast interest income to maintain an upward trend,” said IH in a 2021 first half earnings review for CBZH.
The group’s non-funded income grew 66 percent year on year from $5,59 billion to $9,27 billion driven by growth in the agro- business income, fair value adjustments on financial instruments as well as fees and commissions income.
However, with the recent upward review of the bank policy rate to 60 percent, IH Securities opines that there may be an upward adjustments in lending rates in 2022.
The equities analysts also sees higher net interest margins for the group going into 2022 on the back of increased lending, improved technology and digitisation.
“However, downside risk exists from the possibility of sudden policy changes that may stoke inflation.
“Revaluations in foreign currency should soften on account of relatively stable inflation presenting a downside risk to earnings relative to the high base set in 2020 numbers.
“Resultantly, we believe ROE and ROA are going to sharply correct downwards towards historical,” said the brokerage firm.
Net interest income is projected to increase 74 percent while non-funded income is expected to increase by 79 percent driven by growth in net fees and commissions which are sustained by upward review of service fees and net trading income.
Despite the improved systems that were to bring about a leaner cost structure, with cost correction operating expenses are seen surging by 151 percent while deposits and loans should grow at a rate of 83 percent and 174 percent respectively largely due to the translation of foreign currency-denominated deposits, increased overdrafts and increase in the agro-loan book.