Bruce DickChief Executive OfficerZambia National Commercial Bank Plc. March 31st, 2016
2015 Financial Performance (The Transformation Journey)
A Presentation to Shareholders at the
2016 AGM
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Agenda
Introduction
Outlook
Economic & Market Conditions
Market Performance
Focused & Consistent Strategy in Chosen Segments
Conclusion
Financial Performance
Current Significant Developments
How Is Our Performance?
Fit2Serve
What Drives Us?
Our Board & Executive Team
Our Journey
Our Governance Structure
Note: Office of CEO includes (Transformation & Strategy, Corporate Affairs investor relations, PR, external communications, Corporate Legal Counsel, Bank Secretary)
CCO Chief Commercial Officer
COOChief Operations Officer
CROChief Risk Officer
CFOChief Finance Officer
Business unit
Support function
Key
Compliance
HR & Training Office of CEO
Internal Audit
CEO
Board Of Directors
ChairpersonVice-
Chairman
MD Member MemberMemberMemberMember
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Our Journey
Source: Zanaco MIS
Mar ‘13-Jan ‘14
• Board approved upgrade to core banking system• Designed and implemented the system
Feb ‘14-Jun ‘15
• Post implementation challenges arose from upgraded core banking system
• Market conditions challenging (cheque truncation, new reserving requirements, liquidity)
• Revised Medium Term Plan (2015-2017) approved by the Board
Jul ‘15 to date
• Revised Medium Term Plan put to context (how we will align organisation with MTP, position for challenging market conditions, etc)
• Planned for operating model review and redesign, the Fit2Serve (F2S) program
• Implementing the F2S
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Focused & Consistent Strategy
978K customers
197 ATMs2,044 PoS
Clear focus on Food & Agric
67 Branches& Agencies
1.2 million Cards
oIncreasing engagements
with our customers
oIncreasing focus on our
core segments;
Personal
Food & Agriculture
SME
GRZ
Corporate
oDriving operating model re-
alignment to deliver;
Increased productivity
across the organisation
increased efficiency in
the way we conduct the
business
Source: Zanaco MIS
>500 ZanacoXpress Agents
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Economic & Market Conditions
Deteriorating Macro Backdrop
Source: BoZ, WB country report
Dom
estic
econom
y e
xperie
ncin
g
stro
ng h
eadw
inds
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Economic & Market Conditions
Deteriorating Macro Backdrop cont’d
……
..Driv
en b
y a
mong o
ther is
sues, a
declin
e in
copper p
rices, w
hic
h is
als
o
negatin
g th
e p
ositiv
e im
pact o
f low
er
glo
bal o
il pric
es
Source: BoZ, WB country report
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Economic & Market Conditions
Deteriorating Macro Backdrop cont’d
…..T
hus a
chie
vin
g p
rice s
tability
rem
ain
s a
big
challe
nge
Source: BoZ, WB country report
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Economic & Market Conditions
Deteriorating Macro Backdrop cont’d
Tig
hte
r liquid
ity w
ith ris
ing in
terb
ank
fundin
g
Source: BoZ, WB country report
Impact of inflation/Fx rate on money mkts
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How Has The Market Performed?
Growing market, but fx assets and liabilities driving most of the growth, thus disadvantaging banks with predominantly Kwacha balance sheets
Source: BoZ
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How Has Fx Impacted Market Deposit Growth?
Normalized market deposits growth rate (after stripping-out abnormal fxinfluence on demand deposits) remains in the upper teens
Source: BoZ
Significant Fxrate influence
YoY Growth Dec-15
Total Deposits 33%
Demand Deposits 35%
Savings Deposits 15%
Time Deposits 33%
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Abnormal growth in Fx deposits arising from translation effects
Source: BoZ
Fx rate influence on growth
How Has Fx Impacted Market Deposit Growth?
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How Have Core Deposits in the Market Performed?
……Non-traditional fx demand, & volatile term deposits driving funding growth in the market
Source: BoZ
Significant Fxrate influence
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How Was Our Financial Performance?
Grew but at a much slower rate, however, cost were significantly
higher
* Impact of steep exchange rate depreciation on FX NPLs
** Impact of share consolidation exercise in 2015
• Revenue grew but below the
historically normal growth rate on the
back of;
• High cost of funding
• Slower than normal growth in L & A
• Operating cost significantly up due to;
• Challenges in the current operating
model
• FX impact on US $ denominated service
contracts (IT, & property expenses)
• One-off costs relating to cheque
truncation clean-up (industry wide
challenge), operating model redesign
etc
• Deposits grew but mainly driven by
term deposits which are expensive and
rate driven
Source: Zanaco IFRS Financials
Financial Highlights
(ZMW’ million) 2015 2014 Change
Revenues 1,068 973 10%
Operating expenses 785 606 30%
PBT 283 367 -23%
Exceptional Loss 104
Impairment 98 49 100% *
Tax charge 67 71 -6%
PAT 118 143 -17%
Deposits 6,033 5,054 19%
Assets 7,946 6,664 19%
L & A (net) 3,447 3,139 10%
Equity 1,040 1,001 4%
Operational C/ I 74% 62% 18%
Operational C/ I (less one-off) 65% 62% 5%
Dividend/share in ZMW 0.03 0.005 500% **
EPS in ZMW 0.081 0.016 406% **
ROA 1.5% 2.1% -31%
ROE 11.3% 14.3% -21%
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There is scope for revenue productivity improvement
Source: Zanaco IFRS Financials
How Was Our Financial Performance? cont’d
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Further financial efficiency improvement expected
Source: Zanaco IFRS Financials
How Was Our Financial Performance? cont’d
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Balance Sheet Structure & Efficiency
Strong opportunities still exist to further improve the way we sweat our assets
Source: Zanaco IFRS Financials
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How Do We Fund Growth?
Source: Zanaco IFRS Financials
Sta
ble
and s
ticky fu
ndin
g p
ara
mount to
our g
row
th s
trate
gy
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Balance Sheet Utilization
Source: Zanaco IFRS Financials
…….But current monetary policy measures hurting asset efficiency development.
High liquidity level arising from unwinding the bond portfolio in 2014 key for
relatively strong liquidity position
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How Are We Adding Value?
Increasing our share in the key
sectors of the economy driving our
focus
Source: Zanaco IFRS Financials
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How Are We Adding Value? cont’d
……While we also maintain a robust risk management framework, that support
our strategy of taking a long term view on our customers. The Food and
Agric segment which is core to the Bank demonstrate our ethos
Source: Zanaco IFRS Financials
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How Do We Turn Around Performance?
Source: Zanaco MIS
oWe recognise that since privatisation, Zanaco; Has changed its outlook, business
model, key performance metrics, and it has significantly grown but has never reviewed its operating model
Has updated its core banking system without fully reviewing the supporting processes
oThe need to review the current operating model is apparent and thus, Zanacoembarking on the transformation journey, which involves re-organising the way we currently operate.
oThe aim of the transformation is to re-align the way Zanaco is organised with a view to; Increase productivity across the
organisation increase efficiency in the way we
conduct the business Increase financial sustainability &
growth
The re-organization of Zanaco is a Board approved
program led by a core group of executive
management with assistance from consultants
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What Have We Done So Far?
oWe have reviewed how the Bank is performing (diagnostics)
oWe have used the outcomes of the diagnostics to design what Zanaco
should look like in order to deliver on its Medium Term Plan
aspirations, as well as build a sustainable bank
oWe are now in the implementation phase of the re-organisation.
oImplementation is a collective team effort driven by executive and
senior management together with their respective teams, and
supported by consultants
oThe implementation of program initiatives is driven from a central
point, the Results Delivery Office, that manages, monitors, and
provide feedback to the executive team and the Board on progress,
challenges, and required mitigating solutions to encountered
challenges
What will it take? The journey will be tough but will create a winning culture based on strategic goals and investing in Zambia
WE MUST CREATE A CONSISTENT WINNING CULTURE…
…BASED ON LONG TERM STRATEGIC GOALS
Be #1 in Zambia’s most critical sectors
(e.g. Agric, SME)
Increase sales coverage to serve target
sectors and reach the underbanked
Reward top performers with above market
compensation
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What Is Our Dividend Proposal?
Source: Zanaco IFRS Financials
Dividend Amount (K '000) 42,013 43,313 43,313 43,313
Main
tain
div
idend d
ecla
red &
paid
in 2
014
2012 2013 2014 2015
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Conclusion
Challenges in the macro and market conditions will continue, but focus on delivering performance is key
oEconomic outlook, and market conditions will remain fragile due to;
Elections pressure
Continued inflationary pressure
Continued power challenges
Tight liquidity
Further decline in industrial productivity due to increasing cost of borrowing as a
direct result of MPR upwards adjustment and removal of lending cap
Potential rise in default rate as borrowers are likely to struggle with payment
obligations
oOur focus will be on;
Continue building on the current improvements (deposits, customer engagement,
service delivery etc.)
Effective implementation of initiatives under F2S (Branch productivity
improvements, new organization structure, cost improvements etc)
Closely managing different stakeholders expectations during this massive
change program
Increasing risk management for both F2S and BAU activities
Turning around the financial performance of the Bank
Thank You for Time, Any Questions?
Disclaimer
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