ABC Holdings, the Pan African bank, has endured some difficulties in the financial period ending June 30, 2019 arising from impact of drought, commodity prices, the strengthening US dollar and impact of global trade issues amongst others in the markets in which it operates.
“In most of the countries, the central banks and governments are trying to stimulate the economies by pursuing accommodative monetary and fiscal policies. In general, due to adverse movements in balance of trade and high public debt, exchange rates have been under some pressure although depreciation so far has been relatively moderate with some interventions, except for Zimbabwe which has depreciated steeply,” the company directors reported in a statement accompanying the results.
In Botswana, the executives said, gross domestic product growth was revised to 3.9% from 4.2% owing to weak diamond sales amid an uncertain global growth backdrop and lower tourism volumes. Fiscal stimulus measures should provide some support for growth.
Mozambique was adversely affected by the cyclones and uncertainty due to upcoming elections. Possible developments in the natural gas sector (US$25 billion Liquified Natural Gas project) present some optimism.
In Tanzania, a slight downward revision in GDP from initial forecast of 6.5% to 6.0% for 2019 reflected unfavourable weather conditions. Revised GDP growth forecast in Zambia of 2.0% from 4.5% reflects the negative impact of Government’s deteriorating fiscal position, the impact of drought on agriculture and mining sector weakness. The slight uptick in inflation will be due to pass-through effects of kwacha depreciation and rising food price pressures.
Economic volatility in Zimbabwe persisted during the period, resulting in a rapid rise in inflation. For the first time since 2008, Zimbabwe is set to register a contraction in GDP due to persistent foreign currency and fuel shortages as well as the impact of drought. A number of economic reforms have been introduced to address the unfolding economic imbalances, which saw the country introducing its own local currency in June 2019, the Zimbabwean dollar. The positive effect of these reforms is yet to be seen and, in the meantime, the country continues to witness hyperinflation conditions and heavy devaluation of the local currency.
Performance Summary
Excluding IFRS 5 impairment, the Group recorded a profit of US$6.8 million for the six months ended 30 June 2019 compared to the same period prior year profit of US$4.0 million. The impact of the Zimbabwe dollar’s depreciation, by more than 500%, against the US$ since the beginning of the year took its toll on performance. As a result, net interest income of US$39.8 million was 31% down from US$57.9 million in the comparative period. Healthy loan book growth was seen in the Zambia business which made significant strides in public sector lending as well as on the consumer and corporate lending book in Zimbabwe. Non-interest income increased by 40% from US$37.3 million for the six months ended 30 June 2018 to US$52.2 million for the six months up to 30 June 2019 largely due to improved foreign currency trading performance in Zimbabwe, Mozambique and Zambia as focus continued on non-funded income growth.
The Group’s impairment charge reduced from US$3.7 million during the first half of 2018 to US$0.7 million for the six months ended 30 June 2019, an 80% decline. This was due to impairment releases from recoveries made, notably in Zimbabwe, Tanzania and Mozambique as well as continued adherence to the Group’s improved credit monitoring and recovery processes.
Botswana’s first half performance was down from prior year 2018, thereby reducing its contribution to Group performance during the period under review. This was mainly due to slow asset growth and higher cost of funds in the first half of the year. However, the second half of the year is expected to see improved performance as the Bank has revamped its digital platforms and seen more business being underwritten, the impact of which is expected to be seen in the second half of the year.