A Review of Zimbabwe's Financial Services Sector performance for the period ending 30 June 2012 by FBC Securities Equities Research.

1. FBC Securities Research
June 2012 Financial Sector Overview
FBC Securities (Pvt) Ltd
Overview of the Financial Services Industry
September 1, 2012
2nd Floor Bank Chambers,
76 Samora Machel Avenue, Notwithstanding the turmoil that has haunted the sector since the inception of the
P.O Box 1227, Harare, Zimbabwe multi currency regime, fortunes seem to have taken a positive turn in one of the
oldest financial systems in Africa. After having survived a decade long
Tel: 263-04 -700373/700928/797765-67 astronomical hyperinflationary climate, unemployment above 95%, negative
economic growth and industry capacity utilization below 20%, Zimbabwe’s
Fax 263 -04 -704492 financial services sector is on the mend with 13 out of 16 commercial banks
Website: www.fbc.co.zw recording profits in the Half Year period to 30 June 2012. The financial services
sector has been the fastest growing sector in the economy with an average growth
rate of 13% since 2009 and a growth projection of 23% to FY2012. Despite
numerous hurdles that have sought to impede growth in the sector, among them,
dented confidence impending from the promulgation of the economic
empowerment regulations, unsustainable debt overhang above US$10 bil
undermining the economy’s ability to attract offshore lines of credit and the
absence of a functional lender of last resort, we however remain unyielding that
the sector is poised for growth.

2. FBC Securities Research
Architecture of the Banking Industry in Zimbabwe
Listed Unlisted Banks Merchant Building Savings
Banks Banks Societies Bank Zimbabwe’s Banking Sector by the 30 June 2012 constituted of:
BancABC Agri bank Capital CABS POSB
Bank 16 Commercial banks
Barclays Stanchart Tetrad FBC 2 Merchant Banks
4 Building societies
CBZ Stanbic CBZ 1 Savings Bank
16 licensed Asset Management Companies;
FBCH MBCA ZB 172 operating microfinance institutions
Trust MetBank The Macroeconomic Environment
NMB ZABG
Despite the stability that has characterized the multicurrency
ZB AfrAsiaKingdom regime since inception, growth has started to level off, GDP
growth was revised down to 5.6% amid drastic
TN Bank EcoBank underperformance of key sectors like Agriculture (2012 revised
growth rate 5.8%) and Tourism (revised growth 10.4% down
3.3%), the projected budget has been revised down from US$4
bil to US$ 3.640 bil putting pressure on key sectors of the
economy to do with below budget funding. Meanwhile, a
September 1, 2012
strengthening rand and firming oil prices have continued to
threaten the sustainability of this single digit inflation going forth
Notwithstanding the above economic developments, the following challenges were embedded within the Macroeconomic
Environment:
Policy reversals and inconsistencies;
Indiscipline in the financial sector;
Deterioration of infrastructure.
Adverse global economic developments;
Difficult external sector position;
Persistently recurrent liquidity challenges;
The negative effect of sanctions;
Widespread closure of companies; and
Limited fiscal space.

3. FBC Securities Research 3
Operational Overview
The overall banking sector remained in a safe and sound financial condition, notwithstanding the challenging macro-
economic environment characterized mainly by market illiquidity, low savings, volatile deposits and short term loans.
Financial intermediation improved as reflected by the growth in deposits and lending to the productive sectors.
Total deposits held in by the banking sector increased marginally by 2.8% from $3.32 billion in December 2011 to $3.413
billion by June 2012 while loans and advances granted increased by 12% from $2.9 billion in December 2011 to $3.246 billion
as at 30 June 2012.However , Zimbabwe largely remains a cash economy with about$ 3 billion dollars having been
estimated to be circulating outside the formal market.
Despite this growth in deposits and loans, liquidity challenges have remained in the general economy due to the huge
recapitalization requirements particularly in the manufacturing and mining industries.
Consequently, the banking sector’s focus has shifted to the sourcing of favorable financing structures and credit lines that
match the liquidity and funding requirements of the country’s recovering economy.
The structure of Banking Deposits , has remained short term and largely transitory in nature , limiting bank’s ability to
underwrite meaningful long term loans.
Volatile short term deposits, however, accounted for more than 90% of total deposits.
Sector Developments
The Reserve Bank approved the name change from Metropolitan Bank Limited to Metbank Limited with effect from 23
March 2012.
Ecobank Zimbabwe Limited was granted authority to commence commercial banking business effective 15 May 2012, in terms
of Section 16 of the Banking Act [Chapter 24:20]
Recapitalization of ReNaissance Merchant Bank by the National Social Security Authority (NSSA), resulted in the Reserve
Bank uplifting curatorship on 2 March 2012 and the subsequent name change to Capital bank
The Reserve Bank increases the minimum Capital requirements of banking institutions as, US$100 mil for Commercial
September, 2012
and Merchant banks, US$80 million for building societies, US$60 mil for Finance and Discount houses and US$5 mil for
Microfinance Banks. Enforcement of the new Capital requirements will require the regulated institutions to be, 25%
compliant by 31 December 2012, 50% by 30 June 2013, 75% by 31 December 2012 and fully compliant by 30 June 2014.
Genesis Investment bank and Royal Bank voluntarily surrendered Banking licenses after failing to meet capital
requirements and manage financial and liquidity positions.
AfrAsia group came to Kingdom Bank’s rescue with a fresh injection of Capital resulting in the bank becoming a member of
the AfriAsia group and a subsequent name change to AfrAsiaKingdom Bank.
Growth in mobile banking products escalates as the country embraces e-commerce: Mobile moola and Zippit by FBC, Eco-
cash by Econet, global banking rises with roll out of the MasterCard by most of the banks in the country.

4. FBC Securities Research 4
HY2012 BANKING SECTORS FINANCIAL RESULTS OVERVIEW
Total Deposits for the period at US$3.413 bil were slightly
Deposits
higher than the US$3.32 bil at the close of FY 2011
On an annual basis, the growth in deposits has slowed down
after recording a 16.7% growth to June 2012 compared to a
growth of 56.5% over the same period last year.
Growth in Banking sector deposits was largely driven by
annual increase in time deposits of over 30-day, 98.18%;
under 30-day, 13.54%. The significant increase in time
deposits partially reflects the shifting of economic agents
from non-interest earning balances to interest earning
deposits.
Deposits continue to be of a short term nature, thereby
presenting worrisome vulnerabilities in the sector. In this
regard, short term deposits, which comprise of demand,
savings and under 30-day deposits continue to dominate total
deposits. The high concentration of short term transitory
deposits partially reflects that economic agents are largely
using the banking system for facilitating salary payments
rather than deliberate and planned savings.
September, 2012
Share of Deposits-
CBZ Bank had the largest market share of deposits at 28% as
at 30 June 2012, up from 24% in December 2011.
The top five commercial banks had a combined market share
of 63% (US$2.164 bil). The top five institutions by deposits
were CBZ, BancABC, Stanbic, Standard Chartered and FBC
which managed to narrowly displace Barclays Bank.

5. FBC Securities Research
Loans to Deposit Ratio’s
Total loans and advances in the banking sector increased to approximately $3.246 billion as at 30 June 2012 up 12% from
$2.9 billion as at 31 December 2011. The loans to deposit ratio decreased from an average of 87% as at 31 December 2011 to an
average of 71% as at 30 June 2012. The general decrease in the loans-to-deposit ratio suggests that banks are leaning towards
a cautious strategy in their lending in view of the increasing non-performing loans.
September 1, 2012
Consistent with the transitory nature of deposits coupled with the attendant liquidity challenges, banking sector credit has
also largely been short-term in nature against a background of a short term deposit base coupled with limited access to
external lines of credit as well as high liquidity risks.
Given that loans are a function of deposits, banks with higher deposits had larger lending books, with the exception Barclays
which remains conservative in its lending activities.
Of the 16 surveyed banks, 6 had loans to deposit ratios above 80%, 6 had loans to deposit ratio between 60% and 80% and 4
had a ratio below 60%. Commercial banks as expected dominated contribution to loans and advances putting in 82.92%
(US$2.712 bil) while Building societies contributed US$346.21 mil (10.59%)

6. FBC Securities Research 6
CBZ was the leading bank in loans and advances to customers with $726 million in loans and advances and its loans to deposit
ratio was 76%. Ecobank had the highest loans to deposit ratio of 99%, and Barclays had the lowest ratio of 29% indicating that
it was very conservative in its lending.
The average market loans to deposit ratio is expected to decrease in the remainder of 2012 as a number of banks indicated
that they will take a conservative approach to lending in order to contain the level of non-performing loans.
The current operating environment characterised by liquidity challenges has seen banks being reluctant to aggressively
advance loans given the high levels of inherent credit risk. Strong credit risk management will remain critical for the
management of loan books, while the use of collateral should enhance recoveries in the event of defaults.
Sector distribution of credit remains largely skewed towards Services sector taking up 18.62% of loans and advances,
worrisome to note is the fact that lending to individuals has grown exponentially from 8.6% in June 2011 to a whopping 18%
in June 2012, this rise is at the expense of crucial sectors like Agriculture which has declined from 18% to 15% over the same
period and distribution which has declined from 13% to 9.4% in June 2012.
The short term lending coupled with subdued capital inflows, has deprived the economy of much needed investment in capital
intensive projects which are imperative for sustainable economic growth.
The Reserve Bank has, however, noted with concern the gradual deterioration in asset quality as reflected by the level of non-
performing loans which is now trending towards the watch list category. Asset quality challenges can potentially heighten
liquidity risks given the current operating environment where credit is largely financed by volatile short term deposits. In this
regard, it is imperative that banking institutions enhance their credit risk management systems with special emphasis on
credit assessment, origination, administration, monitoring and control standards. The introduction of Basel II standards is
expected to improve credit risk management practices in the financial services sector.
September, 2012

7. FBC Securities Research 7
Total Assets Analysis
On average Deposits accounted for about 83.2% of the industries banking assets
Meanwhile on the reverse side of the balance sheet, Loans to assets were at 58.2%.
Share of Assets
The chief top five banks continued to dominate
accounting for just over 60% of the Total
Banking Industry’s Assets
Of the total banking assets, CBZ accounted for
the lions share at about 26.1% followed by
September, 2012
BancABC at 10.5%, Stanbic at 9.5%, StanChart
8.8% and Barclays at 6.1%.
Sizable asset contributions were also noted in ZB,
FBC, and MBCA which commanded markets
shares of just slightly above 5%.

8. FBC Securities Research 8
Profitability
For the half year to June 2012 profitability seemed to be on a positive track with Banking sector Earnings before taxation at
US$59.44 mil and US$42.02 after taxation
The average PBT for the 16 enlisted institutions stood at US$3.71 mil for the half year to June 2012
Industry average ROA, calculated as per the 16 enlisted banks stood at 0.21%, with StanChart recording the highest
return at 2.31%, followed by Stanbic at 1.74% and BancABC at 1.61%.
September, 2012
Above average returns were noted in 12 Institutions while the remaining institutions where below average.
In terms of profitability CBZ was the most profitable bank at US$17.7 million, followed by Standard chattered at US$11.05
million and Stanbic at US$10.03 million.
Three banking institutions over the period under review made losses namely Agribank ($2.43mil), Trust ($2.18mil) and ZABG
($1.63 mil). Trust bank is in the first half of its second operational year since come back and has been focusing on
infrastructural development, branch roll out and market share acquisition. ZABG still struggles to sail above capitalization
and efficiency concerns while AgriBank is haunted by Undercapitalization and Non Performing Assets

9. FBC Securities Research 9
Income Source
Interest Income to Total Income
A thumb rule in the banking industry is that
a bank’s main income stream should be its net
interest income which should be able to cover
the bank’s operational costs.
The average interest income to revenue ratio
for the industry stood at 74% against
International benchmarks of between 65% and
70%.
Low interest income to revenue ratios reflect
on Zimbabwe’s liquidity constrained
environment in which lending has remained
highly constrained by the short term transitory
nature of deposit
With the growth in loans to deposit ratios across
the industry over the year, Interest income now
commands the bulk of Income composition in
many Banks except a few that are still to grow their loan books in line with Industry trends, CBZ “s ratio of Interest Income to
total Income was at 126% trailed by Trust with 107%, Bank ABC with 106%, TN with 97% and FBC with 96%
Non Interest Income to total Income
Non Interest income with most banks mainly
consisted of fees and commissions, dealing
income and other income from sale of assets as
September, 2012
well as fair value adjustments.
Non Interest income continued to be a key
driver of banks earnings, at an industry
average of 60%, 7 banks had above average
ratios indicating a less aggressive lending
approach compared to the other 9 with below
average noninterest income contribution to total
income.

10. FBC Securities Research 10
Interest Margins
High interest margins characterized the banking
sectors earnings for the period with the industry
average being pegged at 64% for the 16 banks
analyzed compared to 66% for December 2011
Crystallizing on accessibility to cheap off shore
financing, were Stanbic and Standard Charted
which recorded margins of 100% a piece.
Barclays and MBCA cashed in on cheap offshore
support to achieve margins of 79.4% and 73.2%
respectively, 12 Banks recorded below average
Interest margins, 11 of which are indigenous
banks bearing testimony to the liquidity squeeze
in the local market pushing cost of funds high.
Resultantly, high interest margins have been experienced in the sector though not sustainable in the medium to long term.
Thus future lending rates are anticipated to gradually decline translating into thin margins.
Costs to Income
The cost to income ratio can be seen as a
measure of how much banks used to generate
income. Looking at the 16 banks analyzed, the
industry average Cost to income ratio for the
period was 93% which is still above the
September, 2012
International benchmark standard of 75%
Out of 16 banks 10 recorded Cost to Income
ratios of below the industry average of 93%,
Stanchart continues to lead the pack in terms of
cost containment with a ratio of 62% trailed by
BancABC with 65.6% ahead of CBZ at 65.5%.
With numerous banks having gone through rationalization, retrenchment costs became a main feature of the banks
operating expenses.

11. FBC Securities Research 11
Return on Equity
ROE is a measure of the return on ownership
interest and for the period under review the
industry’s average ROE was 4.25%
The return to profitability by most of the banks
reflects increased confidence in the banking
industry resulting in an increased number of
financial transaction volumes going through
the formal banking sector. Some banks have
also moved in to tap into the large previously
unbanked market through e-commerce
products.
Yielding desirable returns on investment funds
were earnings in Stanbic at 18.66%, BancABC
(16.39%), CBZ (16.17%), Stanchart (13.76%) NMB (10.54%)
In relation to ROE, ROA tends to be a more volatile ratio depending on the structure of assets held. The return on Assets in
the banking sector tends to be lower given that physical assets held by banks are not usually held for income generating
purposes. The Industry’s ROA was pegged at 0.21% for the half year period to June 2012 with banks, Stanchart (2.31%),
Stanbic (1.74%), and BancABC (1.61%) NMB (1.35%) and FBC (1.29%) proving to be better off.
In Concluding
With the country still on a recovery quest that has seen growing resistance from both economic and political hurdles coupled with
September, 2012
lack of plausible support from the international community which has been for some time bedeviled by economic and political
atrocities of its own in its own back yard, economic recovery and restoration of business confidence, especially in banking sector will
depend on successful liquidity creation and continued stability of the political environment. While some have argued for merger of
small indigenous banks citing synergistic benefits and capitalization advantages, some believe a US$100 million capitalization
requirement in a US$12 billion dollar economy is somewhat stretching it. Despite the recent downgrade of economic growth
prospects from 9.4% to 5.6% we remain obstinate that the financial services sector will exhibit positive growth. Country risk will
remain the biggest hindrance to access to offshore lines of credit and the enforcement of the Indigenization and Economic
empowerment act also remains critical in determining the volume of foreign capital investment that will filter into the economy.

12. FBC Securities Research 12
Ranking Total Profit Before
Institution Assets Institution Deposits Institution Loans & Advances Institution Tax
1 CBZ 1,080,458,890 CBZ 958,834,612 CBZ 725,979,672 CBZ 17,701,072
2 BancABC 433,470,000 BancABC 381,948,000 BancABC 296,479,000 STAN CHART 11,051,122
3 STANBIC 392,086,000 STANBIC 336,466,000 STANBIC 266,628,000 STANBIC 10,028,000
4 STAN CHART 365,101,002 STAN CHART 282,576,004 FBC 156,423,668 BancABC 8,778,000
5 BARCLAYS 251,276,862 FBC 204,243,271 STAN CHART 125,803,443 FBC 3,838,341
6 FBC 240,013,753 BARCLAYS 202,866,373 ZB 110,846,555 ZB 3,390,003
7 ZB 237,088,078 ZB 192,840,004 KINGDOM 110,753,548 NMB 3,107,421
8 MBCA 192,058,650 MBCA 156,372,799 TN BANK 104,819,791 MBCA 2,834,422
9 METRO 184,260,474 KINGDOM 135,929,991 NMB 103,982,515 METRO 1,944,806
10 NMB 177,833,077 METRO 133,542,906 MBCA 98,679,317 TN BANK 1,267,690
11 KINGDOM 163,358,400 TN BANK 124,217,170 METRO 84,913,851 KINGDOM 855,648
12 TN BANK 147,359,147 NMB 116,793,837 AGRIBANK 77,994,204 BARCLAYS 831,272
13 AGRIBANK 110,286,911 AGRIBANK 81,152,339 ECOBANK 62,352,000 ECOBANK 47,000
September, 2012
14 ECOBANK 80,372,000 ECOBANK 63,242,000 BARCLAYS 59,283,879 ZABG (1,632,922)
15 TRUST 50,122,052 TRUST 27,453,060 TRUST 22,516,122 TRUST (2,177,174)
16 ZABG 40,049,944 ZABG 14,640,977 ZABG 5,149,104 AGRIBANK (2,426,574)

13. FBC Securities Research 13
Contacts
FBC Securities (Pvt) Ltd
Managing Director- Ben Gasura- benson.gasura@fbc.co.zw
2nd Floor Bank Chambers,
Front Office:
76 Samora Machel Avenue, Richard - Richard.Mashava@fbc.co.zw 077 2 446 789
P.O Box 1227, Harare, Zimbabwe Manatsa- Manatsa.Tagwireyi@fbc.co.zw 077 3 289 120
Tel: 263-04 -700373/700928/797765-67 Davide- Davide.Muchengi@fbc.co.zw 077 3 940 770
Fax 263 -04 -704492 Research:
Website: www.fbc.co.zw Yvonne - Yvonne.Saiti@fbc.co.zw 077 3 437 869
Martin – Martin.Mutumhe@fbc.co.zw 077 5 203 746
Albert – Albert.Norumedzo@fbc.co.zw 077 5 198 997
1
Disclaimer: The views expressed in this document reflect the views of FBCH Securities Research based on the information available at the time of writing and as such, may change without notice. It
is provided for information purposes only and whilst reasonable steps have been taken in carefully preparing this document, no responsibility can be taken for any action based on information
contained herein. This document may not be reproduced, distributed or published by any recipient for any purposes without the authorization of FBCH.
September, 2012