First Capital Bank moves to protect balance sheet

LIVINGSTONE MARUFU

Financial services provider, First Capital Bank, is seeking US$90m lines of credit from unnamed offshore funders as it seeks to protect the balance sheet from inflation.

First Capital Bank MD Ciaran McSharry said the bank was looking for more ways to remain relevant in the inflationary environment.

“We will protect the balance sheet from inflation through targeting lines of credit of US$90m from four offshore funders,” McSharry said.

“Lines of credit were negotiated with the European Investment Bank (EUR12.5m) and Afreximbank (US$20m) and are at varying stages of disbursement and the bank is looking forward to expanding this network in the year ahead,” he said.

The development comes as banks have recorded an increase in foreign currency loans in the wake of high lending rates on local currency loans.

McSharry said First Capital Bank would increase its focus on foreign currency-denominated business supported by its deposits, lines of credit, and offshore facilities to protect the bank against the unpredictable environment.

The lender, McSharry said, would deepen market intensity in underlying business by leveraging digital capabilities and robust relationship management.

It would also invest in foreign currency-denominated short-term instruments such as gold coins.

The bank reported a 27% profit decrease to ZWL$ 8.4bn in 2022 from ZWL$ 11.5bn achieved in 2021 due to the erosion of value largely caused by inflation.

Total income increased by 42% to ZWL$36.7bn in 2022 from ZWL$25.9bn in 2021, attributed to broad-based performance improvement across all revenue lines.

Net interest income increased by 37% following a 77% increase in interest-earning assets and its contribution to total income however reduced to 34% from 36% in the prior year.

The bank posted a 25% increase in fees and commissions.

Fees and commissions contributed 33% to total income, a reduction from 38% recorded in 2021.

First Capital Bank’s trading and foreign exchange income increased by 267%, contributing 31% to total income, up from 12% in 2021, reflecting implications of the devaluation of the local currency at a level not fully captured in the inflation index.

Fair value loss on investment property was ZWL$400m, compared to a profit of ZW$2.8bn in 2021.

The impairment charge related to credit risk on financial assets increased by 174% to ZWL$700m from ZWL$200m in 2021.

This is driven primarily by the growth in the loan book, with the non-performing loans ratio remaining low at 0.8% (2021 – 1%), which is well within the business’s appetite.

“Against the backdrop of pricing models for supplies that track movements in the exchange rate, and the need for the regular cost of living adjustments on staff expenses, operating expenses increased by 37% from ZW$15.0bn in 2021 to ZW$20.6bn in 2022.

“This yielded a cost-to-income ratio of 56%, an improvement from 58% in 2021. Whilst a 4% positive jaws ratio was achieved for 2022, cost pressure remains an area of significant concern and future focus is given the technical nature of some of the credits included under total income,” McSharry said.

A net monetary loss arising from holding a substantial monetary net asset portfolio was recognised at ZW$6.5bn, increasing from ZW$1.9bn in 2021.

This constitutes 18% of net operating income, up from 7% in 2021, thus underlining the value destruction effect of inflation.

A 43% reduction in earnings from a joint venture operation to ZWL$ 3.1bn in 2022 from ZWL$5.3bn in 2021 was realised.

This relates to a 50% share in a hospitality and leisure asset.