‘We will make heavy push towards mining’

AFTER transforming agriculture finance in Zimbabwe, CBZ, the country’s largest bank, says it is planning to tap into the mining sector. The Financial Gazette’s News Editor Kuda Chideme (KC) sat down with CBZ chairman Marc Holtzman (MH) and chief executive Blessing Mudavanhu (BM) to discuss the bank’s 2020 performance and plans going forward.

Marc Holtzman, Chairman of CBZ Holdings (right), and Blessing Mudavanhu, chief executive of CBZ Holdings

KC: Talk us through your financials, how did the business fare?
BM: Across the board there has been a significant increase in the top line numbers. Our advances moved from $3 billion to $29 billion so we managed to increase our interest income significantly. Also, our non-interest income ramped up through our digital platforms, especially on the retail banking side. Total income was $14 billion compared to $1,92 billion in 2019, so that was a significant improvement.
MH: What is most impressive is if you look at this in US dollars, we have produced almost three times our best year.
KC: What has been driving this growth?
BM: Better management of credit portfolio and the strides that we have taken in the agriculture space. We have really increased our interest income significantly. Advances moved from $3 billion to $29 billion. Non-interest income; we have been ramping up income from our digital platforms especially on the retail banking side.
MH: Digitisation has been absolutely critical and fortunately we had digitised ahead of the pandemic. We still have more work to do and more products to offer. We are working on this as we speak.
Clearly the move to digitise ahead of the pandemic was very fruitful for us. Secondly, the relief of the OFAC penalties was a huge benefit for us because we are now able to clear US dollars, our US dollar deposits have exponentially increased and we are also able to lend in US dollars. Like Blessing said, the Agro Yield programme; making it more efficient, reducing corruption in that programme and making it much more market friendly has served farmers better and been an exciting new business line for us.

KC: Talk us through your Agro Yield business?
BM: We decided to commercialise that business to attract private sector funding. If we are to go back to our status of being the breadbasket of Africa, we cannot rely on government financing alone so there has to be a way of attracting private sector funding. That is how we came into this space to allow blended financing and also leverage on a network of our clients who we pulled in as suppliers.
This is contract commercial farming. It is not collaterised by the land, it is lending to cash flows. The farmers do not get physical money but they get inputs and on the back of those inputs we generate a loan.
MH: The cash flows come through to us first so we are not relying on someone’s goodwill to pay us back.
In the past farmers just got a blank cheque from the government but with us we have put systems and controls in place where loans are offered to deserving and efficient farmers. Tremendous efficiencies have been introduced to the programme to eliminate abuses. The funds can only be used for inputs and nothing else.
KC: How big is the Agro Yield book?
BM: It is about $6 billion and we intend to grow it because there is room for expansion.
MH: Agriculture is about 30 percent of the economy but until recently it was just under six percent of bank lending and now thanks to the work we are doing it is significantly increasing.
KC: What is your current approach to lending?
MH: We continue to lend focusing on high growth economic sectors. We have not slowed down due to the pandemic but instead continue to support companies to recover and get back on their growth path. We have had to relax the repayment period in some cases in recognition of the slowdown in economic activity.
BM: We are pretty diversified as far as our lending is concerned but going forward, we will be making a heavy push towards mining so that we can have significant exposure to US dollar cash flows in that sector.

KC: What component of your loan book is in US dollars?
BM: We have significantly increased our US dollar book. I would put the split at 50:50 and even for deposits as well.
KC: How much of an impact has the pandemic had on your business in terms of lending?
MH: Some, such as the hospitality industry, have been hard hit and suffered a significant drop in demand due to lockdown and restriction of international travel. Our focus was to adapt and shift our business in response to the different ways of operating by promoting our digital proposition. The extent to which our business was affected is a function of how diverse our exposure is sector wise, and our exposure to companies in the industries that were adversely affected is not too significant. We had to respond in support of our customers and extend the period of payment to allow them to adjust. We have found that many companies that required payment holidays have since caught up. These include haulage companies that were initially affected by the disturbance in cargo movement and the education sector following the reopening of schools.
KC: Government forecasts remain cautiously optimistic as the exchange rate stabilises, with indications of a good harvest and firm commodity prices. What areas do you think still need to be worked on to enhance exchange rate and overall macroeconomic stability?
MH: It should be observed that the current stability has been attained under a challenging pandemic period. A number of positive and forward-looking initiatives have already been put into motion and these include ongoing efforts to rebuild international relations and economic diplomacy, the pursuance of monetary and fiscal restraint, among others. Going forward, the authorities are encouraged to continue striving towards global best practices such as building sizable foreign currency reserves, e.g. traditionally equivalent to three months import cover, maintaining the budget deficit within the benchmark level of three percent of GDP, as well as further reducing the inflation rates.
BM: We are seeing a whole lot of stability on the policy side of things which is good because it allows business to plan unlike in the past. This stability is going to open up a lot more activity in the mainstream economy.
KC: What is your outlook for the rest of the year? In which areas do you see potential for growth for the business?
MH: Although the Covid-19 virus mutations, vaccine hesitancy and vaccine setbacks remain the major downside risks, the outlook is largely positive as the impact of an improved agricultural output, the above normal rainfall, expansions in the mining sector and public sector infrastructure rehabilitation begin to be felt. Key growth areas include the government sector in view of the massive public investment programmes that have been lined up, which will result in a crowding in of the private sector. Agriculture, mining, healthcare, residential construction and ICT, as well as the informal sector will continue to offer significant growth opportunities.
BM: The outlook is positive. We are coming to terms with this virus as people are getting vaccinated and we can see it through our partners. There is more business activity. We are very optimistic so I think this year should be better than the last. And we hope our digital solutions should now begin to bear fruit as more and more customers use them.
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