Following GRZ's 2007 sale of 49% share sale to Rabo Development Bank, Zanaco has fraught to shake off the ghosts of old that have pulled it back from being a considered front runner in the modern competitive banking industry. Small wonder that Charity Lumpa and her team have embarked on a bold move that is targeting the overhaul of the banks strategy.
In the 2014 to 2015 period, the bank, like many others face the tri-challenges of governments adjustment in the statutory reserve ratio, monitory policy rate changes and tightened liquidity from the central bank. However, we can't forget that banking system change that caused mayhem for many of its customers which the Managing Director acknowledges was a minor set back which was eventually over come. The chair lady also acknowledges the macro environment was a vicious one albeit happening in tandem with the bank's transformation through strategy change, embracing of technology and introduction of Fit2serve (The bank's master plan of building on old success for the future).
Their current financials also tell an interesting story. In a bid to sure up its profile to investors, although earnings by 18%, their EPS actually improved by over 400% from 0.016 to 0.081. How did they achieve this? Share consolidation. That's financial speak for, "we value in x number of shares however, we want to reduce that number so that we can appear more attractive". Very clever. This would make any investor pleased.
The impact by macro factors was felt however, in a slight reduction in the bank's net interest margin (9%), loans to asset ratio (4%) and return on assets (1%). Furthermore, its 19% increase in total assets is not matched by the bank's return on non current assets ergo its branches need to make more money. The banks gearing, although increased during the period under review is still within acceptable limits.
Weathering the macro environmental waves will be critical in the months to come. Perhaps, the timing could not be better for a strategy overhaul. Looking at what they did well and how that can help them in the future is a good move although caution would call for innovation being at the center of their strategic plans. With steady stewardship, the prospects of the bank look very bright.
This stock is a good buy and worth holding.
In the 2014 to 2015 period, the bank, like many others face the tri-challenges of governments adjustment in the statutory reserve ratio, monitory policy rate changes and tightened liquidity from the central bank. However, we can't forget that banking system change that caused mayhem for many of its customers which the Managing Director acknowledges was a minor set back which was eventually over come. The chair lady also acknowledges the macro environment was a vicious one albeit happening in tandem with the bank's transformation through strategy change, embracing of technology and introduction of Fit2serve (The bank's master plan of building on old success for the future).
Their current financials also tell an interesting story. In a bid to sure up its profile to investors, although earnings by 18%, their EPS actually improved by over 400% from 0.016 to 0.081. How did they achieve this? Share consolidation. That's financial speak for, "we value in x number of shares however, we want to reduce that number so that we can appear more attractive". Very clever. This would make any investor pleased.
The impact by macro factors was felt however, in a slight reduction in the bank's net interest margin (9%), loans to asset ratio (4%) and return on assets (1%). Furthermore, its 19% increase in total assets is not matched by the bank's return on non current assets ergo its branches need to make more money. The banks gearing, although increased during the period under review is still within acceptable limits.
Weathering the macro environmental waves will be critical in the months to come. Perhaps, the timing could not be better for a strategy overhaul. Looking at what they did well and how that can help them in the future is a good move although caution would call for innovation being at the center of their strategic plans. With steady stewardship, the prospects of the bank look very bright.
This stock is a good buy and worth holding.
Sounds interesting. In the next few months to couple of years, with the impending global economic and financial crises likely to result from China's slow down (China is Zambia's main export destination) the macro environment of the Zambian economy will likely experience serious storms. This means that ZANACO and other banks will not only be working toward weathering tight monetary policy changes but also the general macroeconomic institutional mayhem. Most likely, with the economic downturn in China which will affect the entire emerging economies group, the Zambian economy will continue to experience the problem of low domestic output, high rate of inflation, unemployment, huge public debt and balance of payment disequilibrium. This is addition to electricity supply constraints plus the uncertainties coming from the before and after effects of elections on investment. The Zambia financial sector will certainly feel the impact. In an economy that depends on one commodity for its forex, whose price is on the all time low and is very volatile and currently determined by what's going on in China, the Central Bank's bid to keep keep a vigilant watch over commercial banks cannot be overemphasized. There will be pressure on the Central Bank to rein in the exchange through a tight monetary policy. As the writer notes, banks like ZANACO will have to be very innovative and creative in their strategy. I agree, weathering the current and impending macroeconomic mayhem will be critical for ZANACO. The Bank also has some good experience and am sure it has weathered similar storms before and so should be able to manage well. In fact and however scientific studies have shown that monetary policy changes may not have the feared impacts. Regression models have been tested to determine if rate fluctuation have a significant impact on banks profitability. The result of the study was negative. That is large banks like ZANACO have effectively hedged themselves against market rate risk by assembling asset liabilities portfolios with similar average maturities. However, it has been observed that historically large short-term rate fluctuations have been accepted by policy makers in their efforts to control the monetary aggregates. The banking system's ability to weather these conditions have come as a surprise to many, but seems to indicate that they have effectively balanced their asset and liability to hedge against interest rate charges. I agree with the author, strategy will be crucial and am sure it has been crucial in big banks' capacity to weather the macroeconomic storms and monetary policy effects. Good thoughts from the article!
ReplyDeleteI am a firm believer in building on ones resources and capabilities. Its not surprise that the bank has been upraising hits internal structure and reviewing its strategy. As long as its fully supported by management, investors can be confident that the stewardship of the bank is focused.
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