Financial inclusion pays off for CBZ

CBZ’S aggressive drive to mop up unbanked clients under its ambitious financial inclusion programme is paying off as the financial services behemoth has netted more than 170 000 previously unhooked customers and here Group Chief Executive Never Nyemudzo speaks to Senior Assistant Editor Guthrie Munyuki about the group’s last year performance and future plans; below are the Excerpts of the interview.

Q: There has been debate on the adoption of the rand, with business making the loudest calls for its adoption: Is adopting the Rand the best option for Zimbabwe in the current circumstances?

A: Indeed there has been some interesting debate with regards the optimal currency that Zimbabwe should adopt.
However, what is key is to clearly understand the reason why a certain currency or monetary policy stance should be adopted.
In fact, countries have often adopted other countries’ currencies for the purposes of fostering price stability, with economic stability largely coming in as an added advantage.

So the basic question that one needs to answer is whether the rand will foster price stability in a different way to the US dollar, and whether such an adoption would also enhance macroeconomic stability.

There is no doubt that the strength of one’s currency is a key consideration, especially when a country is pursuing an export led growth strategy.

However, in my view, with the economy already in a stable price environment, what is more critical at this point in time is the ability to attract the right structured foreign direct investment and to invest such in the productive sectors of the economy or in projects that stimulate more economic activity across a wider spectrum.

Q: From your own perspective as a key enabler, in what ways can Zimbabwe’s government fix the economy?

A: The factors affecting our economy can be grouped into internal factors and external factors.

Among the external factors are issues such as the strength of the US dollar — our anchor currency and the generally weak commodity prices.

Unfortunately, there is not much that the Government can do about these external issues, as they are largely determined through policies and events outside our authorities’ control.

Now, with regards internal factors, the main challenges, as has been published by industry representative bodies include low demand, liquidity shortages and high cost of doing business, amongst others.

The Government has laid the foundation, and in some instances is already implementing measures, to address these challenges. The Government’s efforts include measures to unlock favourably priced liquidity through resolving the country’s external arrears and negotiating for bilateral credit lines, addressing the ease of doing business through the Rapid Results Initiative and stimulating local production through support to the productive sectors.

I believe that these measures, if continuously implemented in a well-coordinated and structured manner, will eventually steer the economy towards a sustainable growth path.

Q: As the biggest bank in the country in what ways has the obtaining environment affected you? 

A: The specific constraints to the environment and our overall operations include;

• Cash and foreign currency shortages, resulting in rationing of withdrawals for our valued customers. However, we have consistently been able to meet the critical needs of our clients.
• Constrained credit expansion, due to the weak economic activity.
• Balance sheet recession.
• Informalisation of the economy. However, we have been able to quickly adjust our approach in order to take advantage of transitional opportunities, e.g. in the SMEs.
• Constrained ability to plan for the long term.

However, the responses and measures we have put in place, as illustrated in question 8, are helping us in overcoming these challenges.

In fact, despite these challenges, we have remained the unparalleled top financial institution in Zimbabwe, commanding more than 35 percent of national transactions, 13 percent of the banked population, and assets equivalent to 15 percent of GDP.

Q: CBZ has been reducing its Non Performing Loans (NPLs) in the last three years despite a hostile economic environment which ordinarily is supposed to militate against debt repayment; how have you achieved this?

A: We have strengthened our debt collection department, stayed closer to our clients, and strengthened our collateral position as well as capacitated clients willing to pay but with genuine challenges.

We also benefited from the Government initiative to takeover of NPLs through the Zamco (Zimbabwe Asset Management Company).

Q: On the other hand you have advanced more loans to industry and other productive sectors, how did you manage to strike a balance between reducing NPLs and loaning out more funds in an environment which should be, at least on paper, breeding high defaulting clients?

A: We only loan out a fraction of the deposits we get and to carefully selected clients in viable sectors with a very good credit rating. Operationally we have systematically strengthened the credit origination processes.

Q: How supportive have you been to the Small to Medium Enterprises (SMEs) and what is the percentage of the loans you have advanced to this sector?

A: CBZ Bank has always been very supportive of the SMEs sector, with a growing SMEs loan book of $150 million (15 percent of the total loan book) as at December 31, 2016.

The SMEs loan book is well spread across the country’s economic sectors.

To buttress our support to SMEs, we have also mobilised and allocated funding to the tune of $10 million.

This facility is being administered through our regional centres, which we also created so as to ensure timeous and convenient delivery of service to our customers across the country. Additionally, we have also created strategic funding partnerships with several institutions and organisations which has increased the pool of funding available and has enabled some technical support for our customers.

Q: What has been the success rate in terms of repayment and also sustainability and growth of the businesses within the SMEs that you supported?

A: We are very happy with the repayment rate for this market segment which is above 90 percent.

Q: Previously, CBZ promised to mop up  unbanked clients as part of its strategy to promote financial inclusion; what have been the experiences and how many banked customers do you have now?

A: Our financial inclusion strategy involved the development of appropriate products such as our SmartCash, a KYC (Know your customer) light account that requires a minimum of $5 only to open, taking less than 5 minutes. It’s an account that can be opened on the go by our staff or our over 200 agents across the country. So far we have opened in excess of 170 000 accounts and the number is still growing.

Q: What were the main drivers of your growth in deposits in 2016?

A: We conduct value chain banking, run a robust customer relationship management, develop new products and are now using digital channels as we push for total customer convenience and satisfaction.

Q: Why are you forecasting a slight reduction in 2017?

A: We are considering the GDP growth projections from the IMF of (-2,5 percent) and ministry of Finance of 1,7 percent) and these necessitate that we take a conservative approach.

Q: The economy is on a downward slope; what has been your response to constraints brought about by the current toxic environment?

A: We are responding through the following measures

• Strengthening market presence and synergistic benefits.

• Rehabilitation of clients with future potential, strict credit granting and closer monitoring of borrower performance.

• Innovation to support business development.

• Business processes reengineering to reduce, reorient & optimise costs.

• Portfolio and income diversification.

• Regional expansion.

Q: In the year under review, CBZ instituted cost containment measures; how successful were these and what is it that you dealt away with?

A: Operating expenditure for the bank fell by  nine percent ($7,6 million) from $86,2 million to $78,6 million.

This was due to the cost reduction and control initiatives undertaken by the Group. The initiatives included streamlining of operations, enhanced and efficient use of technology and enhanced use of plastic money by our clients, among others.

The net effect of this was a managed reduction in such staff costs. This is reflected in the decline in staff costs by $10 million from $50,7 million to $40,6 million.

Q: Previously you were the anchor financier of the agricultural sector, if it is the same story how much have you contributed towards the food security under the Command Agriculture scheme?

A: We are still the anchor financier of agriculture. We advanced $52 million this season, and this complemented the Government’s initiative under the command agriculture scheme.

Q: In what ways have you made sure that money advanced for the inputs would be fully recovered considering problems previously encountered? 

A: We have decentralised our agribusiness unit to ensure our staff is on the ground and clients are closely monitored and assisted. We also make direct payments for inputs and employ other risk control measures.

Q: How successful have you been in meeting your targets in building homes for low income and middle income earners in line with the National Housing Development programme?

A: CBZ Bank is one of the major players in the delivery of low cost houses, having delivered both housing units and serviced stands in Harare, Gweru, Mutare, Victoria Falls, and Kwekwe. Currently we are expanding to Marondera, where we are targeting to develop 2 800 high density stands and Bulawayo, where we are also targeting to develop 670 medium density stands. We will also continue to look for opportunities across the country.

Q: You have recorded growth in your asset base in the year under review yet in 2017 you are expecting a slowdown, why?

A: The slowdown in the growth of the asset base is premised on the expected slowdown in the economy as per the GDP growth projections from the IMF of (-2,5 percent) and ministry of Finance of (1,7 percent). Further, CBZ Bank has the largest asset base in the market and as such an anticipated relative growth of 3,3 percent is significant in absolute terms. A 3,3 percent growth on the bank’s asset base translates to an absolute growth of $57,4 million.

Q: Can you explain the growth in deposits at a time when there is high demand for withdrawals, how does this work?

A: We believe that our investment in innovation has been the main game changer, as it has allowed us to introduce products and services that incorporate customer/ end user expectations, are simple to use and bring convenience.

These products and services include the earlier mentioned SmartCash Account — our KYC light account, and CBZ Touch — the country’s only integrated financial services mobile app.

In fact, the wide range of functionalities on CBZ Touch has immensely transformed our customers’ banking habits and lifestyles, as they no-longer see the need to withdraw cash from their accounts inorder to do their transactions.

Additionally, Smart cash has allowed us to tap into previously unbanked markets, and this has also contributed positively towards the national drive for financial inclusion.

We have also buttressed these innovative solutions with our traditional approach of maintaining a closer connection between ourselves and our customers through creation of regular networking and interacting opportunities and events.

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