REVIEW OF THE PERIOD
The general economic malaise persisted in the first half of 2016. In response to prevailing high rates of inflation and continued pressure on the domestic currency, the authorities maintained a tight monetary policy stance. Whilst lending rates remained unchanged, yields available on government paper trended sharply upwards with the wholesale money market following suit.
We experienced a minor contraction in the level of overall customer deposits as we reduced our exposure to high cost wholesale fixed deposits. Despite this, our balance sheet grew, with total assets increasing by 19% through the utilization of credit lines available from financial institutions and proceeds of a subordinated debt issue. K7 billion equivalent of foreign currency denominated subordinated debt included on the June 2016 balance sheet was repaid on 3 July 2016.
Operating results were depressed due to the poor performance of our portfolio of listed equity investments which returned a loss of K1 billion compared to a K355 million overall gain in the corresponding prior period. Income from foreign exchange trading was flat as increased volumes compensated for narrower margins. Other fee and commission income grew strongly as did net interest income on the back of an expanded balance sheet.
It remains challenging to contain costs in the current high inflation environment but, overall, operating expenditure is in line with our expectations for the period.
We expect high levels of inflation to continue and the domestic currency to remain under pressure. Accordingly, the monetary authorities are likely to seek to maintain the current high interest rate regime. There is also a heightened risk of periods of insufficient liquidity in the banking sector.
We will continue to conservatively manage our balance sheet and remain averse to excessive credit risk. To compensate for a possible narrowing in net interest margin, we are focusing on achieving broad based growth in our non-funded income lines.
The Directors have decided that a first interim dividend will not be paid (2015:50 tambala). This decision has been made to ensure that the company’s regulatory capital is strengthened to support long term growth.
By order of the Board,
Dheeraj Dikshit – Group Managing Director
Michael Kadumbo – Chief Finance Officer
Hitesh Anadkat – Chairman