Zambia National Commercial Bank Plc (“Zanaco”) provides banking and financial services in Zambia and is listed on the Zambian Stock Exchange. The bank was founded in 1969 and is headquartered in Lusaka, Zambia. Our stake of 45.6% in Zanaco was acquired from our shareholders at the time Arise was formed.
Country Overview

Zambia is a lower-middle-income country in Southern Africa with a population of around 18 million people. The country’s economy is heavily dependent on copper exports, which account for around 70% of total export earnings. Agriculture is a significant sector of the economy, employing over 70% of the population. The main crops grown in Zambia include maize, cassava, beans, and tobacco. Zambia faces significant economic challenges, including high levels of debt, inflation, and currency depreciation. The government has been implementing policies to stabilize the economy, including fiscal consolidation measures, and seeking debt relief from international partners. As of 2022, Zambia’s GDP is USD 23.6 bn, with a growth rate of 1.4%. The inflation rate is 21.4%, and the unemployment rate is 9.4%.

Banking Sector Overview

The banking sector in Zambia is relatively small but has grown in recent years. The sector is regulated by the Bank of Zambia, which oversees the operations of commercial banks, microfinance institutions, and other financial institutions. There are currently 18 commercial banks operating in Zambia, with some of the largest banks including Zanaco, Standard Chartered, Barclays Bank, and First National Bank. The banking sector in Zambia is dominated by foreign-owned banks, with the majority of banks being subsidiaries of international banks.

As of December 2021, the banking sector in Zambia had total assets of approximately USD 7.9bn, with total deposits of approximately USD 5.9bn. The non-performing loans (NPLs) ratio was 6.3%, which indicates that a relatively small proportion of loans were not being repaid on time. The capital adequacy ratio (CAR) was 21.5%, which is higher than the minimum regulatory requirement, indicating that banks in Zambia have reasonable capital to absorb potential losses. Overall, these statistics suggest that the banking sector in Zambia is relatively healthy and well-capitalised.

Historical Financial Performance

Zanaco has seen a significant increase in performance over the last couple of years. Its assets grew by a compounded annual growth rate of 27% from 2016 to 2021, with an average inflation of 13%.

Zambia experienced a turbulent macroeconomic environment since 2016 and is yet to record a meaningful recovery. The economy defaulted on its foreign commitments in November 2020 and inflation rose to 22% in 2021. However, following the change in the political regime in August 2021, investment sentiment improved, and the Kwacha appreciated by over 20% against the dollar Negotiations over the IMF bailout also intensified; as well as negotiations to restructure the foreign debt. As such, inflation improved to 11% in 2022, in line with pre-COVID levels. From 2020, following the appointment of the new Chief Executive, Zanaco demonstrated a resilient financial performance, reflected in an average ROE of 43% from 2020 to 2022. The average ROE from 2016 to 2019 was 12%.

Current Financial Performance

Zanaco’s total income increased by 11% to ZMW 3.902mn (USD 230mn) from ZMW 3.506mn (USD 178mn) in 2021. Interest incomes were up by 18% to ZMW 3.013mn(USD 176mn), while non-interest revenue fell 8% to ZMW 900mn (USD 53mn).

Operating Costs were stable at ZMW 1.971mn (USD 116mn). Impairment on loans increased four times to ZMW 186mn(USD 2mn) from ZMW 62mn (-USD 6mn) in 2021. Pre-tax earnings increased to ZMW 1.732mn. Zanaco’s after-tax profits jumped by 18% to ZMW 1.1bn (USD 69mn) from ZMW 969mn (USD 50mn) the previous year. The group’s return on assets reduced to 4%, while the return on equity rose to 47% this year. Zanaco’s total assets increased 37.0% to ZMW 35.9mn (USD 1.9bn) from ZMW 26.2bn (USD 1.4 bn), while customer deposits increased 53.9% to ZMW 29.7bn (USD 1.6bn). Loan advances to customers were reduced by 26.0% to ZMW12.1bn (USD 0.6bn).

Development Impact

The bank has adopted a sustainability framework and strategy and is committed to contributing positively to the environment. The bank, through its partnership with the British International Investment (BII), joined the 2X challenge community. This initiative aims to promote gender-smart investment and advance opportunities for women, through providing quality employment, business leadership, and access to finance and products and services that meaningfully impact women.

Zanaco has also partnered with World Vision under the ‘Strong Girls Strong Zambia’ project, where the construction of a school was undertaken. This project aims to curb early marriages and rehabilitate young girls withdrawn from marriages, to gain equal access to education. The bank’s ‘Plant a million trees’ initiative, will also see the bank plant one million indigenous trees and fruit trees by 2025.

Further to the above, Zanaco contributed toward developmental objectives in the following areas (2022 statistics):

Financial inclusion – Zanaco has 406 million mass retail segment customers, serviced through 44 branches, 22 884 X-Press agents, and its digital channels platform (2.35 million active users transacted in 2022). ZMW 1.97bn loans were disbursed, and ZWM 5.44bn deposits were held for this segment.

SME/MSME development – The bank services 30 794 clients, disbursing loans totalling ZWM 1.07bn, and held deposits of ZWM 4.3bn.

Food & agriculture value chain – F&A financing is an important facet of Zanaco’s business model, with 13% of its overall loan book assigned to businesses in this segment. The bank has developed F&A financial products, from its emergent farmer programme, aimed at SME/MSME F&A clients, to bespoke services aimed at its commercial and corporate F&A clients.