ZANACO: Institutional Investors Presentation - Sept 2009

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Presentation to Insitutional Investors By Mark Wiessing, September 2009

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ZANACO: Institutional Investors Presentation - Sept 2009

  1. 1. ZANACO <br />PRESENTATION TO INSTITUTIONAL INVESTORS<br /> By Mark Wiessing, September 2009<br />
  2. 2. 2<br />Contents<br /><ul><li>Zanaco Overview
  3. 3. Zambian Banking Sector
  4. 4. Zanaco Strategy
  5. 5. Operating Environment-2009
  6. 6. Financial Highlights
  7. 7. Summary
  8. 8. Conclusion</li></li></ul><li>Zanaco overview: the “People’s Bank”<br /><ul><li>Originally formed by the GRZ in 1969 (as National Commercial Bank Limited) to operate as a state owned enterprise
  9. 9. Registered commercial bank whose principal activity is to provide banking and financial services
  10. 10. Merged with Commercial Bank Zambia (CBZ) limited in 1976, resulting in changing of names to Zambia National Commercial Bank Limited (“Zanaco”)
  11. 11. Top tier bank in Zambia in terms of deposits, assets, loans and advances and branch network
  12. 12. In 1999 Zanaco was tranched for privatisation
  13. 13. Partially privatized in April 2007, when Rabobank acquired 49% of the Government of the Republic of Zambia’s (GRZ) interest in Zanaco
  14. 14. Privatization and the entry of Rabobank provided Zanaco with:
  15. 15. management and technical support for strategic direction
  16. 16. capability to recapture lead position in the market
  17. 17. cement position as a broad based retail bank with rural presence
  18. 18. Opportunity to improve operational and financial efficiency </li></ul>3<br />
  19. 19. Zanaco overview: the “People’s Bank” (Cont’d)<br /><ul><li>In November 2008, the final stage of the partial privatization was completed by Zambia Privatization Trust Fund (ZPTF), acting on behalf of GRZ, offering for sale 25.8% shares held on behalf of GRZ to the Public
  20. 20. Zanaco simultaneously raised new capital through an Offer for Subscription of 170,625,000 ordinary shares
  21. 21. The ownership structure post IPO is:
  22. 22. Rabobank 45.6%
  23. 23. GRZ 25%
  24. 24. Free float on the LuSE 29.4%
  25. 25. Governance: Nominees to the Board
  26. 26. 3 from Rabobank
  27. 27. 2 nominated by GRZ
  28. 28. 1 independent (ZNFU)</li></ul>4<br />
  29. 29. Zanaco Overview: Branch / ATM Network/IT Infrastructure/Customer base<br /><ul><li>Zanaco has one of the widest branch and ATM networks in the country
  30. 30. All Zanaco’s branches are fully computerized and thus funds transfer within the network is real time online
  31. 31. Zanaco has 56 points of representation</li></ul> with 2 new outlets opened since <br />privatisation<br /><ul><li>Zanaco has 100 ATMs. Target total of 165 ATMs by </li></ul> year end 2009<br /><ul><li>Over 100 GPRS POS deployed. Targeting between </li></ul>300-350 GPRS POS by year end 2009<br /><ul><li>Zanacooperates off “Flexcube” platform</li></ul> supported by VSAT, DSL, Fibre optic and,<br /> other communication tools<br /><ul><li>Over 230,000 customers</li></ul>5<br />
  32. 32. Zanaco Overview: Existing Product Mix<br /><ul><li>Retail</li></ul>Account Services: current, savings<br />Personal Loans: Premier, “Scheme”, Home loans<br />E-Banking: Visa Electron, SMS banking (balance enquiries), E-Tracer (statement e-mailer), ATM’s, POS, internet banking,<br />“Xapit” Instant Banking: mobile banking<br />Remittances: Salaries, Western Union, Bill Muster<br />Cash Services: Kwacha, forex, Cash, TC’s<br /><ul><li>Corporate</li></ul>Credit Facilities: working capital, term loans, syndicated loans, agric seasonal finance, asset finance<br />Treasury and Investments: spot/forward, time/notice deposits, treasury bills/bonds, securities<br />Transactional Services:<br /><ul><li>E-Banking: payroll management, bulk payments, internet banking, SWIFT
  33. 33. Trade Services: import and export L/C’s and collections
  34. 34. Cash Services: CIT, nationwide payments and collections</li></ul>6<br />
  35. 35. Zambian Banking Sector<br />
  36. 36. Zambian Banking Sector Overview<br />Development of the Banking Sector<br />Players in the market<br /><ul><li>17 registered commercial banks
  37. 37. 10 leasing companies
  38. 38. 3 building societies
  39. 39. 16 microfinance institutions
  40. 40. 1 development bank
  41. 41. 1 Savings and Credit bank
  42. 42. 40 bureau de changes
  43. 43. 1 Credit reference bureau
  44. 44. New bank entrants (FNB, UBA, ECO bank, Access bank)</li></ul>Regulation<br /><ul><li>Banking sector is regulated by BOZ
  45. 45. Regulatory statute is the Banking and Financial Services Act (BFSA) of 1994</li></ul>Sustained growth rates at 25-30% <br />Source)Bank of Zambia, prudential accounts as at 30 June 2009<br />8<br />
  46. 46. Competitive Landscape-1H 2009<br />Ranking by total assets (ZKw’ Mn)<br />Ranking by total deposits (ZKw’ Mn)<br />Market: K 17,134 billion<br />Zanaco: K 2,631 billion<br />Market share: 15%<br />Market: K 12,169 billion<br />Zanaco: K 1.965 billion<br />Market share: 16%<br />Ranking by total loans & advances (ZKw’ Mn)<br />Ranking by total POR’s<br />Market: K 7,688 billion<br />Zanaco: K 1,178 billion<br />Market share: 16%<br />Market: #249<br />Zanaco: #56<br />Market share: 22%<br />Source)Bank of Zambia, Prudential accounts as at 30 June 2009<br />9<br />
  47. 47. Zambia stage of development and Regional Comparison<br /><ul><li>Low overall levels of access to the formal financial system
  48. 48. Low usage of credit products from formal institutions
  49. 49. Low financial product penetration
  50. 50. Two thirds of Zambia’s adults are not yet served
  51. 51. Low banking penetration with a ratio of deposits to GDP of approximately 20-25%
  52. 52. High historic growth rates of deposits (25-30% p.a.) and loans & advances (30-35% p.a.)</li></ul>10<br />
  53. 53. Zanaco Strategy<br />
  54. 54. Aspirations<br /><ul><li>Sustainably profitable
  55. 55. Broad based retail bank for all segments (corporate, retail, public service, agric)
  56. 56. Consistent quality, fair price
  57. 57. Sales/service oriented
  58. 58. Urban/rural distribution
  59. 59. Employee and customer satisfaction
  60. 60. Organisation structured to meet business requirements
  61. 61. Use technology advantage to achieve benefit of scale at low cost
  62. 62. Clear segmentation to drive business direction and resourcing
  63. 63. Grow at least at market growth rates and recapture market shares
  64. 64. Target # 1 position
  65. 65. Efficiency ratios to improve to at least current market averages (C/I, LDR, staff/ooe ratio)
  66. 66. Rabobank link for key relationships and technical assistance</li></ul>12<br />
  67. 67. Vision, Values and Mission<br />Vision<br /><ul><li>To be the people’s bank, and to be the leading financial services firm in Zambia, providing sustainable financial returns and benefits to all our stakeholders </li></ul>Values<br />What drives us?<br /><ul><li>Proactive, result oriented, and pride</li></ul>How do we achieve our goals?<br /><ul><li>Teamwork, accountability, and competence</li></ul>What guides us?<br /><ul><li>Integrity, respect, and professionalism</li></ul>Mission <br /><ul><li>To consistently exceed our stakeholders’ expectations in proactively designing, selling, delivering, and servicing competitively priced financial solutions for all key segments of the Zambian public, in rural and urban areas, through appropriate technology, and distribution channels, with empowered and motivated staff</li></ul>13<br />
  68. 68. Strategic choices<br /><ul><li>Segmentation and Sales</li></ul>Retail Banking and Corporate Banking Divisions to mobilize sales focused on chosen segments (Corporate, Retail, SME)<br />Use of relationship managers, branch sales and direct sales agents<br /><ul><li>Products: </li></ul>Core product functionality fully operational<br />Designing and rolling out product extensions particularly electronic solutions<br /><ul><li>ATMs, GPRS enabled POS terminals
  69. 69. Visa Electron,
  70. 70. Internet Banking,
  71. 71. Mobile banking (Xapit)
  72. 72. Distribution: </li></ul>Branch benchmarking and review of functionalities<br />Employing alternative distribution channels and partnerships (Zampost)<br />Optimise existing network, selective growth;<br />14<br />
  73. 73. Strategic choices (contd.)<br /><ul><li>Process: </li></ul>Branch process re-engineering<br />Centralized processes<br /><ul><li>People: </li></ul>Move from payroll management/control function to management advisory<br />Implementation of best practice and performance management<br />Training<br />Staff migration/reduction<br /><ul><li>Credit: </li></ul>Tighter credit standards, control provisions<br />Credit process reengineering<br />Credit scoring for improved turnaround times and active portfolio management<br /><ul><li>IT/Technology:</li></ul>Enhance existing and rollout new cost effective ICT solutions based on customer needs <br />15<br />
  74. 74. Key assumptions and metrics for the medium term future<br /><ul><li>GDP growth at around 5% p.a.
  75. 75. Deposits to grow at least at market (25-30%)
  76. 76. Loans and advances to grow at least at market growth rates (25-30%), preferably higher, subject to NPL and provisioning improving
  77. 77. Net interest margin declines slightly from 8% to 6% as a result of lower interest expectations in the medium term, and need to increase deposit pricing to continue gradually gaining market share and lengthen tenor of liabilities
  78. 78. Non-interest income to trend to 50% of total income
  79. 79. Trading income from 1 to 3% of assets
  80. 80. Revenue growth to trend to about 30% p.a.
  81. 81. Operational cost to income ratio to trend to 65%
  82. 82. Staff expenses (excluding restructuring charges) to reduce from 65% to 50% of total expenses
  83. 83. ROE to increase from mid-teens to 25%
  84. 84. Metrics and assumptions may be adjusted from time to time depending on external or other circumstances </li></ul>16<br />
  85. 85. Operating environment<br />
  86. 86. Zambian economy<br /><ul><li>Optimistic Government budget assumptions (vs likely outcome);
  87. 87. GDP growth 5% (3%)
  88. 88. Inflation 10% (15%)
  89. 89. Increased government borrowings from 1.4% to 1.8% of GDP
  90. 90. Recent developments
  91. 91. Tax revenue shortfalls
  92. 92. Copper price recovering in the last few months
  93. 93. Copper production & export increasing
  94. 94. Fiscal deficit expected to widen
  95. 95. Higher interest rates, higher inflation (power shortages, increased power tariffs, fuel)
  96. 96. Forex outflow reduced due to reduced demand of forex by FPI; Kwacha stabilized
  97. 97. Improved GIR US $ 1.1 bn (as at end of June 09) compared US $ 884 mn (as at Mar 09-the lowest level in the last 2 years)
  98. 98. GRZ accessing SDR from IMF in September 09</li></ul>18<br />
  99. 99. Zambian economy (cont’d)<br /><ul><li>Overall
  100. 100. Slow down in the economy in 2009
  101. 101. Flat industry growth for 1H 2009
  102. 102. Worst appears over
  103. 103. Cautious optimism for 2010
  104. 104. Strategy unchanged, but short term adjustments in line with market slow down</li></ul>19<br />
  105. 105. Banking industry slowdown in 1H 2009, expected to recover in 2010<br /><ul><li>FYE 08 vs 1H 09 industry performance;
  106. 106. Total assets: 0.1% contraction
  107. 107. Net loan & advances: 1.3% growth
  108. 108. Deposits: 0.29% contraction
  109. 109. Capital up by 6%
  110. 110. NPL ratio (NPL/GL) up; from 6% to 8%
  111. 111. Provisions up by 26% respectively
  112. 112. 1 H 09 slowdown due to;
  113. 113. Secondary impact of global financial crisis (reduced economic activities)
  114. 114. Seasonal effects of deposits (impact of GRZ budget cycle)
  115. 115. Fx impact on deposits (FCY deposits) </li></ul>20<br />Source)Bank of Zambia, Prudential accounts as at 30 June 2009<br />
  116. 116. Banking industry slowdown in 1H 2009, expected to recover in 2010 (cont’d)<br /><ul><li>YOY (1H09 vs 1H08) industry performance;
  117. 117. Total assets: 18% growth
  118. 118. Net loan & advances: 29% growth
  119. 119. Total deposits: 22% growth
  120. 120. Capital up 15%
  121. 121. NPL (NPL/GL) ratio up from 5% to 8%
  122. 122. Provisions up 587%
  123. 123. Outlook
  124. 124. Slow down in (retail) lending
  125. 125. Increased risk of provisions
  126. 126. Opportunities in agric & agri business
  127. 127. Reduced earnings performance
  128. 128. Recovery expected in 2010 in line with the economic recovery</li></ul>21<br />Source)Bank of Zambia, Prudential accounts as at 30 June 2009<br />
  129. 129. Prudential accounts comparables (2008 vs 2006)<br />Source)Bank of Zambia, Prudential accounts as at 30 June 2006/8<br />22<br />
  130. 130. Prudential accounts comparables(1H 09 vs 1H 08)<br />Source)Bank of Zambia, Prudential accounts as at 30 June 2008/9<br />23<br />
  131. 131. Financial highlights<br />
  132. 132. Key financials at a glance<br />25<br /><ul><li>FYE 2008 PBT up by 91%
  133. 133. FYE 2008 PAT impacted by return to 40% income tax rate
  134. 134. Improving EPS; 1H 2009 32% up compared to same period 2008</li></ul>Source:Zanaco, IFRS accounts<br />
  135. 135. Key financials at a glance (cont’d)<br />26<br /><ul><li>Deposits grown by 56% from 2006 to 2008; 1H 2009 20% up compared to same period 2008
  136. 136. However, deposits growth in 1H 2009 slower compared to YE 2008; mainly due to the seasonal characteristics (lower economic activities in 1H than in 2H)</li></ul>Source:Zanaco, IFRS accounts<br />
  137. 137. Key financials at a glance (cont’d)<br />27<br /><ul><li>Strong assets growth-71% growth from 2006 to 2008; 35% growth in 1H 2009 compared to the same period 2008; assets growth include large once off loan to Zambia sugar</li></ul>Source:Zanaco, IFRS accounts<br />
  138. 138. Key financials at a glance (cont’d)<br />28<br /><ul><li>Strong revenue-65% growth between 2006 & 2008
  139. 139. 1H 2009 28% up compared to same period 2008
  140. 140. Profit growth on track </li></ul>Source:Zanaco, IFRS accounts<br />
  141. 141. Key financials at a glance (cont’d)<br />29<br /><ul><li>Financial efficiency (C/I ratio) downwards trending & improving-from 76% in 2006 to 68% in 2008:
  142. 142. 1H 2009 at 58% compared 70% same period 2008</li></ul>Source:Zanaco, IFRS accounts<br />
  143. 143. Key financials at a glance (cont’d)<br />30<br /><ul><li>2008 earnings dilution from;
  144. 144. Impact from tax loss carry forward (in 2007)
  145. 145. IPO capital raise</li></ul>Source:Zanaco, IFRS accounts<br />
  146. 146. Strong financial growth- 3 years IFRS<br />31<br />Source:Zanaco, IFRS accounts<br />
  147. 147. Strong financial growth- 3 years IFRS (cont’d)<br /><ul><li>Revenues growing at an average rate of 28% pa since 2006
  148. 148. Operating costs under control
  149. 149. PBT;
  150. 150. down by 24% in 2007 due to impact of “once off” post privatization adjustments
  151. 151. Returned to growth (91%) in 2008; benefits of re-organisation
  152. 152. Impairments still a major risk
  153. 153. C/I ratio trending downwards
  154. 154. Deposits growth ≥ market growth rate
  155. 155. Strong L & A growth
  156. 156. Strong equity growth</li></ul>32<br />
  157. 157. Strong financial growth- 1H 08 vs 1H 09<br /><ul><li>Revenue growth of 28%
  158. 158. Operating cost growing below revenues and under control
  159. 159. PBT growth sustained at 68%
  160. 160. Impairments still a major risk
  161. 161. Deposits on track; 20% growth YOY
  162. 162. Strong L & A growth (including large one-off)
  163. 163. Strong equity growth
  164. 164. C/I ratio in the right direction; from 70% to 58%</li></ul>33<br />Source:Zanaco, IFRS accounts<br />
  165. 165. Developing a well diversified funding mix<br /><ul><li>Strengthened funding structure
  166. 166. Taken in M/T FCY funding to improve FCY maturity mismatches
  167. 167. Steadily growing shareholders’ funds</li></ul>34<br />Source:Zanaco, IFRS accounts<br />
  168. 168. Developing a well diversified funding mix (cont’d)<br /><ul><li>Sturdy funding mix driven by deposits
  169. 169. Low cost of funding (2%); retail & transaction orientation</li></ul>35<br />Source:Zanaco, IFRS accounts<br />
  170. 170. Top tier deposit taker<br /><ul><li>Loyal savings deposit profile
  171. 171. Market leadership saving deposits; 31%
  172. 172. Deposits growing on average at market rate
  173. 173. Less aggressive on fixed deposits</li></ul>36<br />Source:Zanaco, IFRS accounts<br />
  174. 174. Top tier deposit taker (cont’d)<br /><ul><li>Strong transactional deposits; Retail orientation
  175. 175. Good GRZ deposit base; mainly “sticky” transactional deposits
  176. 176. Growing a stable corporate deposit portfolio; despite slow down in 1 H 2009</li></ul>37<br />Source:Zanaco, IFRS accounts<br />
  177. 177. Top tier deposit taker (cont’d)<br />38<br /><ul><li>Market share loss in deposits in 1 H 09 (3%)-due to seasonality effects; high impact on banks with significant portion of GRZ deposits i.e. Zanaco-K 338 bn, Finance bank-K 95 bn, Indo-Zambia bank-K 165 bn
  178. 178. Top benefactors; , Bank of China- K 444 bn, Stanbic Bank Zambia K 152 bn</li></ul>Source)Bank of Zambia, Prudential accounts<br />
  179. 179. Development of assets <br /><ul><li>Good assets mix over the last 2 1/2 years
  180. 180. Good liquidity
  181. 181. Strong assets growth; 35% 1H ‘09 vs 1H ‘08, Average 30% growth p.a. since 2006</li></ul>39<br />Source:Zanaco, IFRS accounts<br />
  182. 182. Development of assets (cont’d)<br />40<br /><ul><li>Well diversified asset structure; Liquidity vs yield
  183. 183. Good L & A portfolio balance between wholesale & consumer assets
  184. 184. Good spread of the wholesale assets with a focus on the real sectors; Agric, Manufacturing</li></ul>Source:Zanaco, IFRS accounts<br />
  185. 185. Quality of assets<br />41<br /><ul><li>Growing assets with controlled growth in NPL’s
  186. 186. Most NPL’s arising from legacy pre-privatization issues
  187. 187. NPL’s well covered</li></ul>Source:Zanaco, IFRS accounts<br />
  188. 188. Quality of assets (cont’d)<br />42<br /><ul><li>Seemingly aggressive provisioning levels; recognizing some quality issues arising from the </li></ul> pre-privatization portfolio<br /><ul><li>Improving control on credit risks </li></ul>Source:Zanaco, IFRS accounts<br />
  189. 189. Summary<br />
  190. 190. Overall performance 2009<br /><ul><li>Strategy unchanged
  191. 191. P & L on track
  192. 192. Earnings growth stabilized
  193. 193. B/S growth slowed down in line with economy; recovery expected in 2010
  194. 194. Strong capital base
  195. 195. Strong liquidity in ZKw and FCY
  196. 196. Key efficiency ratios improving & on track; C/I, LDR, Trading Income, Staff/Ooe
  197. 197. Focus for 2010
  198. 198. Deposit growth
  199. 199. Customer service and sales
  200. 200. Enhance F & C and trading income</li></ul>44<br />
  201. 201. Conclusion<br />
  202. 202. Conclusion<br /><ul><li>Consolidating the #1 position
  203. 203. Not significantly affected by the effect of the global financial crisis
  204. 204. Residual risk of increased provisions
  205. 205. To continue growing at market or above
  206. 206. Current valuation ( based on 2008 IFRS, and price as at 29/09/09)
  207. 207. P/E 9.89 times
  208. 208. P/BV 1.85 times</li></ul>46<br />
  209. 209. Disclaimer<br /> Zambia National Commercial Bank PLC, (hereafter “Zanaco”) has taken all reasonable care to ensure that to the best of its knowledge this presentation is true and correct in all material respects, does not contain any untrue statement of a material fact, is not misleading and does not omit to state any material fact, the result of which would make the statements, opinions and intentions herein, in the context in which they are made, misleading in any material respect. This presentation and any other information supplied is not intended to provide the basis of any evaluation, and should not be considered as a recommendation by Zanaco. Any recipient of this presentation, or of any other information supplied in connection with this presentation should make its own independent investigation of the financial condition and affairs, and its own appraisal, of Zanaco, including the merits and risks involved. This presentation does not constitute an offer to sell or the solicitation of an offer to buy any Zambia National Commercial Bank PLC, ordinary shares in any jurisdiction to any person. Zanaco does not represent that this presentation may lawfully be distributed, or that any Zambia National Commercial Bank PLC, ordinary shares may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available there under, or assumes any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by Zanaco that would permit a public offering of any Zambia National Commercial Bank PLC ordinary shares or distribution of this document in any jurisdiction where action for that purpose is required. Accordingly, this presentation may not be re-distributed or re-published in any jurisdiction, except with the express approval of Zanaco. <br /> Forward-looking statements<br /> This presentation may include “forward-looking statements” which include all statements other than statements of historical facts, including, without limitation, those regarding Zambia National Commercial Bank PLC’s financial position, profit and revenue forecasts, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Zambia National Commercial Bank PLC’s products and services) and any statement preceded by, followed by or that includes the word “projects”, “estimates”, “targets”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “would”, “could” or “seeks” or any similar expression or the negative thereof. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other important factors beyond Zambia National Commercial Bank PLC’s control that could cause the actual results, performance and/or achievements of Zambia National Commercial Bank PLC, to be materially different from future results, performance and/or achievements expressed or implied by such forward-looking statements. Forecasts or projections made in this presentation are based on assumptions that may or may not materialize. While such forecasts or projections have been prepared with due care and objectivity, no representation, warranty or undertaking, express or implied is made and no responsibility is accepted for the reasonableness of any forecast or projection.<br />47<br />

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