Earnings Report /

First Capital Bank: FY 19: Non-funded income and revaluations sustain revenue and profitability

  • Share of profits in joint venture significantly boosts bottom line

  • Leveraging on the new integrated IT system to scale up non-funded income

  • We have a TP of ZWL$0.39 implying upside of 75% and a Buy recommendation

IH Securities
4 May 2020
Published byIH Securities

First Capital Bank (FCB) reported a 79.9% growth year on year in interest income to ZWL$74.64mn from ZWL$41.48mn, largely sustained by the growth in interest from loans and advances to customers, offsetting a decline in interest income from banks and investment securities. Non-funded income registered a 445.58% growth yoy as fees and commissions were up 266.68% to ZWL$100.72mn, in line with the completion of the system migration process and the upward review of service fees. Net trading and foreign exchange income was up 422.99% for the year, a combination of increased trade volumes on the interbank market as well as revaluation of the foreign currency earned on interbank transactions. Fair value gains on investment property of ZWL$59.07mn also contributed to the growth in the non-funded income segment. 

Overall, the bank registered a 264.60% growth in revenue vs the comparable period. The net impairment charge increased significantly to ZWL$30.05mn from ZWL$2.46mn largely due to the growth in the loan book, however the bank continued to manage its NPL ratio at below 1%. In line with the inflationary environment, operating costs increased by 317.92% to ZWL$226.04mn from ZWL$54.09. PAT increased to ZWL$264.19mn from ZWL$24.32mn buoyed by an increase in share of profits of joint venture of ZWL$228.24mn. Resultantly, basic earnings per share improved from ZWLc1.13 to ZWLc12.26. 

Cash and bank balances increased exponentially due to the translation of foreign currency balances into ZWL$. Notably cash and bank balances closed the year up from ZWL$150.74mn to ZWL$1.13bn as a result of currency revaluation of balances with banks abroad. At the end of FY19, the banks’ total assets had increased from ZWL$698.74mn to ZWL$2.95bn. The bank’s capital adequacy was 26%, surpassing the regulatory minimum of 12%. Since the reporting date, the Reserve Bank increased the minimum capital to US$30mn with compliance required by December 2020. We are forecasting the bank’s capital will be ZWL$852.19mn by December 2020, this translates to US$34.09mn if the rate remains fixed at US$1: ZWL$25. Depending on the evolution of exchange rate policy between now and year end the ZWL$ equivalent will naturally be a moving target. Given the difficult trading environment the new capital requirements may be difficult to obtain from internal earnings if the local currency continuously depreciates. Seeing as this as an industry wide issue the most likely scenario in the event of noncompliance is that Bankers would seek an extension of the deadline from the RBZ. 

We anticipate the growth in net fees and commission to be adversely affected by Covid-19 interventions, the extent to which will be determined by the length of the crisis; the RBZ encouraged the banking sector to suspend increases in charges related to the provision of all electronic payments until the crisis is over.


We expect non-funded income to increase in FY 20 in line with the value extraction from the new system that has been installed by the bank as well as inflation driven fee increments. We expect RoAEs to marginally decline in FY20 to 40.42% with a moderate increase in FY21 to 48.38%. We estimate FCB trades on a P/BV of 0.56x and P/E (+1) of 1.66x versus regional peers at P/BV 0.88x and P/E (+1) 2.87x for 202019. Using our combined method of DDM and Static ROE we arrive at a TP of ZWL$0.39 implying upside of 75%. Given the potential upside we place a Buy recommendation on FCB.