INVEST TRUST – 2016 Half Year Review

We have been closely following the quest for positive earnings for Invest Trust Bank. Our annual review of the bank highlighted some of the challenges faced by this local offering. Following their recent publication of their half year performance, it is small wonder that they have now appointed a new Chief to head the bank. Simangolwa Shakalima comes to the bank on a back of a performance that was hit by the Bank of Zambia policy rate adjustment among other things. However, there are other issues reported in their interim report that include the impact of higher amounts and incidences of money market borrowings and increase in overnight lending rates (shows latency in changing a strategy that caused problems). The cost of money was expensive for the bank.

A spot check on performance showed a 9% increase in interest income (good), 34% increase in interest expense (bad), a 40% reduction in Net Interest Income (where they make their money), a 7% reduction in Other Operating Income (good, shows they are trying) and a 20% reduction in Net Interest and Other operating income.  

Their balance sheet told a story of a 12% reduction in total assets, a 1% reduction in loans/advances, a 6% reduction in customer deposits and a 35% reduction in shareholders' equity. Value continues to be destroyed. The talk of dividends will not be on the minds of shareholders as they will certainly be pushing the new chief for a turnaround. Incentive is there as they have seen reduction in equity with the issuance of new shares in a bid to raise capital.

At the moment, their management team indicate they will continue to execute prudence in operation expenditure. In addition, they will be looking for cheaper money and hope to woe more clients to the bank (economies of scale). This will be achieved through offering new products to potential clients.  

However, the prospects of higher defaults remains a deep concern due to the increase interest rates. They are formulating a strategy to deal with this that includes stronger underwriting. Hopefully, no more value will not be destroyed else the new chief will have a bumpy ride into the 2017.