A PRESENTATION TO THE ZICA WORKSHOP

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A PRESENTATION TO THE ZICA WORKSHOP

• BUSINESS EXCELLENCE IN TURBULENT TIMES-IS IT
  POSSIBLE?

Livingstone, 17 April 2009
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Contents

• Origins of financial crisis
• Impact on Zambias economy
• Recent past
• 2009 Medium Term Outlook
• Recent trends in Zambian banking industry
• Impact of the crisis on banking industry and
  private sector
• Corporate response to the new environment
• Conclusion

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• Origins of the global financial crisis

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Global crisis-background

• Low inflation and high liquidity globally
• Investors looking for higher yields in riskier
  assets
• Strong lending growth by thinly capitalized banks
• Sharp rise in security and house prices
• Over extended borrowers and increased loan
  defaults (mortgages)
• Sharply falling security values and forced
  liquidations
• Large losses at banks and banks unable to fund
  productive sectors
• Illiquid banks nationalized/closed
• Sharp economic slowdown
• Risk of self perpetuating negative spiral
• G20 now attempt aggressive stimulation to reduce
  the impact success not guaranteed but market
  reactions encouraging

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Global crisis-background (contd)

• Likely scenarios of continued high interest rates
  in the medium term as a result of high government
  borrowings globally
• Impact on emerging markets
• Reduction in crude oil and primary commodity
  (including copper) prices
• Depreciation of all emerging markets currencies
• Withdrawal of cross border investments from cash
  rich economies away from emerging markets as
  market participants aggressively deleverage
• Slow global growth for medium term
• Recession in the short term

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• Impact on Zambian economy

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Zambia recent past

• Solid macro-economic policies
• Downwards trends of inflation and interest rates
• Strong and stable Zambian Kwacha
• Strong Gross International Reserves
• Copper prices at historic highs
• Strong GDP growth rates
• Improvement in banking sector penetration and
  financial inclusion as a result of large
  investments in retail banking initiatives in
  urban and rural areas
• Strong banking sector growth ( 30 p.a.)

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2009 and medium term outlook

• Kwacha depreciation
• Upward trending inflation in the mid teens
• copper prices to range steadily between USD 3,500
  and USD 4,000 per ton
• Withdrawal of capital projects in the mining
  sector
• Reduced production in mining and other mining
  activities
• GRZ borrowing to increase from 1.4 to 1.8 of
  GDP
• Slow down in the economy 2009 GDP growth rate
  5 p.a.
• Withdrawal of foreign investors from
  T-bills/Bonds, equities, and repayment of Kwacha
  liquidity facilities provided by hedge funds or
  parent banks to local banks
• Reduced market liquidity in Kwacha and foreign
  currencies, resulting in reduction in credit
  extension to the productive sector
• Upwards pressure on local interest rates in
  Kwacha and USD
• Lay offs in the mining sector unemployment
  pressure
• Risk of deteriorating credit quality further
  reduction in consumer credit extension

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• Impact of the crisis on the banking industry and
  private sector

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Possible impact of crisis on Zambian banks

• New environment
• Higher interest rates
• Less liquidity in USD and Kwacha
• Higher credit risks
• May result in
• Tighter credit standards
• Limited credit extension
• Re-pricing to reflect higher risks
• More rapid move toward foreclosure/receiverships
• General cost containment measures

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Possible impact of crisis on Zambian private
sector

• Slower economic growth slower sales
• Payment delays affecting working capital
• Higher cost of imported materials
• Higher inflation expectations
• Higher cost of credit
• Difficulties in renewing credit facilities in
  some sectors

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• Corporate response to the new environment

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Private sector-time to tighten the belts

• Work the balance sheet
• Manage capital
• Manage liquidity payables/receivables
• Cost conscious
• Cash is king
• But stick to long term strategy and fundamentals
• Create opportunities
• Prepare for when slow down lifts
• Stay customer focused, not inward focused
• Continue investing selectively
• Boost staff productivity
• More market share shifts and opportunities in
  turbulent times than in good times!

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Outlook

• Not to be too negative
• Sub-Sahara Africa better off than G 20
• Decreasing share of developed economies in global
  economy
• Some of the best companies come from the toughest
  operating environments
• BRICs, Mexico, Zimbabwe!
• Agile in volatile environments
• Emerging markets to grow faster than G 20
• Becoming less export dependent
• Growing local/regional markets
• Multi-National Companies expect more than half of
  their future growth to come from emerging
  markets!

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Outlook (contd)

• Key reason of failure of companies
• Not operating environment
• But
• Lack of strategy
• Lack of ability to execute
• Getting things done in difficult times
• Clear strategy
• Right people
• Focus on operational issues
• Sustainable results
• Back to basics
• Real value
• Real delivery

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Vision, Values and Mission

• Vision
• To be the peoples bank, and to be the leading
  financial services firm in Zambia, providing
  sustainable financial returns and benefits to all
  our stakeholders
• Values
• What drives us?
• Proactive, result oriented, and pride
• How do we achieve our goals?
• Teamwork, accountability, and competence
• What guides us?
• Integrity, respect, and professionalism
• Mission

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Zanaco-What have we done?

• Privatisation April 2007
• Clear strategy
• Vision
• Mission
• Financial aspirations
• Visible progress made
• 2 new branches opened (Senanga and Chirundu)
• Refurbishments
• 5 branches refurbished and 8 other branches given
  a facelift by year end 2008
• Products
• ATM air time top up
• Mobile banking
• ATMs 35 to 100

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Zanaco-What have we done? (contd)

• GPRS enabled POS
• Seba enhanced
• Corporate internet banking
• Visa electron
• Lima/Munda scheme
• Emerging farmers credit facility
• Relationship managers and Agric team
• Branding
• Financial progress
• Revenue 33 up
• Cost/Income down from 79 to 70
• Gross LDR 47
• Deposits growth 30

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Zanaco-What have we done? (contd)

• Capital structure
• Capital Adequacy Ratio from 11 to 18
• New foreign currency funding USD 25 million
• Ownership structure
• IPO
• ESOP
• Citizen Owned
• Rabo 46
• GRZ 25
• Public 29 (Institutional Investors, ZNFU,
  Individuals, Employees)
• CSR
• Financial literacy program
• Zanaco FC
• Citizen owned Still Zambian, Still your Bank!
  Bigger, Stronger, more Reliable

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• Conclusion

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Conclusion

• If we satisfy our customers needs, business and
  financial results will follow, in good or in bad
  times!

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• Addendum

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Suggested key policy measures-Zambian economy

• Ensure banks are encouraged to continue financing
  key sectors such as agriculture, SMEs (fiscal
  and monetary policy incentives)
• Ensure continued convertibility of Kwacha, but
  curtail offshore dealings in Kwacha that would be
  speculative (consider discouraging short term
  transactions through stamp duties rather than
  outright prohibition)
• Diversification of economy away from minerals to
  primary agriculture and agric-processing, and
  SMEs
• Support primary agriculture
• Industry initiative to refurbish or build
  silos/warehouses (to avoid farmers flooding
  market at harvest time)
• Finalize warehouse receipt legislation
• Professionalize/privatise extension services
• Minimize distorting subsidies and spur of the
  moment import/export bans that decimate farmers
  and that discourages banks from lending to the
  sector

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Suggested key policy measures-Banking sector

• Maintain sufficient liquidity for the banking
  sector by ensuring ample liquidity mechanisms
  for banks (T-bills discount/Repo window) are in
  place delay monetary initiatives that would
  reduce liquidity
• Encourage competition in the financial services
  but
• Increase banks minimum capital requirements
• Currently at K 12 billion, USD 2.5 million!
• To K 100-150 billion, USD 20/30 million
• Ensure sufficient returns to the banks to
  continue funding capex and costs associated with
  financial inclusion initiatives for all Zambians
• Review banking sector tax rate to normal tax rate
  of 35 to reduce costs (fiscal stimulus)
• BOZ to access foreign currency funding from the
  IMF/World Bank to provide Apex facilities to
  banks for on lending to productive sector
• Encourage banks to lend to productive/agriculture
  processing sectors instead of consumptive credit
• Reduce bank leverage/reduce loan to deposit
  ratios

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Suggested key policy measures-Banking sector
(contd)

• Ensure banks remain involved in Agriculture and
  SMEs
• Lower statutory reserve requirements or provide
  incentives for banks with demonstratable
  initiatives on financial inclusion or exposure to
  chosen sectors
• Finalize CEEC funding structure for SMEs
• Finalize DBZ SME guarantee facility

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Key policy measures-Customers

• Remove rigid labour legislation it delays needed
  corporate or industry restructuring and
  increases risks of companies to close during
  difficulty times like these
• Economic diversification stimulus package (Apex
  funds/monetary policy incentives/ DBZ SME
  guarantee fund) to reduce the cost of lending to
  the key productive sectors
• Continued increase of financial inclusion
  initiatives in urban/rural areas