ADVISORY firm IH Securities (IH) has projected a 98% increase in net income for the banking concern First Capital Bank during the 2021 financial year, buoyed by higher deposits and improvement in the operating environment.
In its analysis of the bank’s financial results for the year ended December 31, 2020, IH expected the group to maintain solid profit growth and forecast that net income will increase to ZW$3.45 billion in the current financial year, up from ZW$1.74bn reported in the same period last year.
“We believe that improvements in the operating environment on uptick of economic activity will bring in added viability to the banking sector,” IH said.
“As the spread between interest rates and inflation narrows, we anticipate that banks will gradually revert to their core business of lending as previously revenue was being driven by the non-interest income thereby changing the composition of revenue going forward and improving the loan-to-deposit ratio.”
With cost of funding unlikely to shift significantly, IH expects nominal yields to remain robust in supporting interest income going forward.
Depending on exposure to the medium-term bank accommodation facility (MBA), yields on interest-earning assets could however be affected by the central bank’s announcement that banks which access the MBA facility can only on-lend the proceeds at a maximum 10% above the borrowing rate, effectively putting an interest rate cap of 40%, it said.
“It is our view that fair value gains on investment property and net foreign exchange gains will start to soften on account of stabilising inflation. We believe that the bank’s drive to migrate services online will continue to pay off on changing consumer behaviour leading to expectation of extended growth in the fees and commission income line,” the firm said.
Despite management’s commitment to cost containment, IH said it is its view that costs will continue to rise in the short term as costs continually catch up with inflation, which may provide some downside risk to the cost to income ratio.
“We forecast the bank will register higher deposits on targeted increases in reserve money supply leading to a solid base for lending activities.
“The bank has indicated it has secured 87% of the US$30 million regulatory capital required by the Reserve Bank of Zimbabwe at FY21 (full-year 2021) and on this basis, we believe the bank has enough flexibility to undertake activities to remain in a profitable position to FY21. We forecast a small dividend this year,” IH said.
First Capital’s inflation-adjusted total income increased to ZW$3.4 billion during the review period, from ZW$2.4 billion during the comparable period in 2019, with pre-tax profit rising to ZW$901 million, from a loss of ZW$494 million previously.
The bank’s total deposits grew by 331% year-on-year driven by a 298% growth in local currency deposits to ZW$4bn.
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