HARARE — People’s Own Savings Bank (POSB) suffered a sharp decline in first-half profitability despite aggressive balance-sheet expansion, as regulatory pressure on transaction fees collided with rising funding costs and a slower conversion of deposits into higher-yielding loans.
Net profit fell 42.1% to ZWG108.5 million, from ZWG187.4 million a year earlier, even as total assets expanded 23.5% from December to ZWG4.73 billion and customer deposits surged 36.9% to ZWG2.66 billion.
The results underline a growing challenge for Zimbabwean banks: mobilising deposits is becoming easier, but converting those deposits into sufficiently profitable assets is proving more difficult as regulatory changes compress fee income and the cost of interest-bearing funding rises.
Equity Axis, in its assessment of the results, said POSB’s balance-sheet expansion had yet to compensate for the deterioration in transaction income.
“Balance-sheet expansion is yet to replace transaction income as funding costs rise and new lending shifts towards households and money markets,” Equity Axis said.
The divergence between balance-sheet growth and earnings is particularly striking. Deposits increased by almost ZWG717 million in six months, but the additional funding generated considerably less incremental profitability.
Fee income takes the biggest hit
Fees and commissions declined 15.1% to ZWG445.7 million, with retail banking fees falling 16% to ZWG422.6 million. That represents a loss of almost ZWG80 million from a revenue stream that remains central to POSB’s business model.
Fees still accounted for 67.6% of net operating income, although their contribution fell from approximately 72.5% a year earlier. The decline follows monetary-policy measures that have affected banks’ ability to generate non-funded income.
The development is significant because POSB remains unusually dependent on transaction-based revenues. Unlike a conventional commercial bank whose earnings may be more evenly distributed between lending, investments and fees, POSB’s historic franchise has been strongly linked to its large retail and transactional customer base.
The bank is now being forced to find alternative sources of earnings.
Higher interest income fails to offset funding costs
The obvious replacement for lost fee income would be lending and investment income. But the first-half numbers show that the transition is proving expensive.
Interest income increased 13.8% to ZWG242.7 million, supported by growth in the loan and investment book. Interest expense, however, surged 151%, from ZWG22.8 million to ZWG57.2 million.
Net interest income consequently declined 2.7% to ZWG185.4 million.
Equity Axis said the figures demonstrate that simply expanding the asset base will not necessarily restore profitability. “The attempted replacement through lending has not yet delivered equivalent earnings,” the research firm said. The problem is increasingly visible in POSB’s funding structure.
Term deposits increased 61.3%, from ZWG617 million in December to ZWG995 million by June. Interest paid on those deposits rose to ZWG54.1 million, compared with ZWG20.7 million in the corresponding period.
POSB has therefore successfully mobilised deposits, but a growing portion of those deposits now carries an explicit funding cost.
For the banking model, that distinction matters.
Low-cost transactional deposits can support both lending margins and fee income. Interest-bearing deposits require the bank to deploy the funds into assets generating a sufficiently high return to compensate for the cost of funding.
Liquidity is not the constraint
POSB’s balance sheet suggests that the bank has ample capacity to expand.
Gross loans and advances rose 20.8% to ZWG1.48 billion, but money-market assets grew much faster, increasing 56.3% to ZWG963.1 million.
Interbank placements rose from ZWG412.2 million to ZWG663 million, while non-negotiable certificates of deposit increased from ZWG26.7 million to ZWG82.7 million.
The gross loan-to-deposit ratio consequently declined from approximately 62.9% to 55.5%. In other words, deposits are growing faster than customer lending.
That leaves POSB with substantial liquidity. Its regulatory liquidity ratio stood at 72%, more than twice the 30% minimum requirement, while capital adequacy was 36.56%, compared with the regulatory minimum of 12%.
The immediate problem is therefore not the bank’s capacity to lend.
It is the availability of sufficiently attractive and adequately secured lending opportunities — and the economics of deploying the liquidity.
Household credit replaces corporate lending
The composition of the loan book provides a further indication of how POSB is responding. Individual loans increased 43% to ZWG855.2 million, while mortgages rose 38.3% to ZWG309.6 million.
Corporate lending, however, was almost unchanged at ZWG93.6 million. SME and agribusiness lending declined 22% to ZWG64.9 million, while microfinance exposure fell 32.7% to ZWG150 million.
Individuals consequently accounted for almost 58% of gross loans, compared with roughly 49% in December.
That represents a significant change in the bank’s credit profile.
Household lending can offer attractive risk-adjusted returns where repayment is supported by payroll deductions, while mortgages benefit from collateral. POSB’s 2.09% non-performing loan ratio suggests that the shift has not so far produced a deterioration in headline asset quality.
But the decline in corporate and SME lending raises a broader question about the role banks are playing in financing Zimbabwe’s productive economy.
The issue is particularly relevant in an economy attempting to expand manufacturing, agriculture, construction and formal business activity while much of economic activity remains outside the formal financial system.
Analysts warn against confusing balance-sheet growth with earnings growth
Market analysts have increasingly argued that investors should look beyond headline balance-sheet expansion and focus on the quality and sustainability of earnings.
In recent market commentary to The Zimbabwe Financial Mail, analysts have stressed that Zimbabwean investors are becoming more selective, with greater attention being paid to earnings visibility, balance-sheet resilience, cash generation and the ability of companies to generate sustainable returns in the country’s evolving monetary environment.
That framework is particularly relevant to POSB.
The bank’s balance sheet is growing rapidly, but the key investment question is whether that growth can generate sufficiently strong recurring earnings.
For POSB, the answer currently appears to be no.
Operating leverage turns against the bank
Operating expenses increased only 2.7% to ZWG551 million, which would ordinarily suggest reasonable cost discipline.
But because operating income declined by 8.9%, the cost-to-income ratio deteriorated from approximately 74.1% to 83.5%.
The bank is consequently retaining a significantly smaller proportion of its operating income as profit.
Only about 16.5 cents of every dollar of operating income remained as net profit during the period, compared with almost 26 cents a year earlier.
This makes revenue diversification increasingly urgent.
Digital services offer potential escape route
POSB is already attempting to rebuild its non-funded income franchise through digital and cross-border financial services.
The bank has reintroduced WorldRemit, launched Mastercard cross-border remittances, expanded Paynow to 73 billers and introduced EcoCash float rebalancing.
Management expects these initiatives to recover some of the fee income affected by the regulatory changes.
The strategy is consistent with a wider transformation underway across Zimbabwe’s banking sector, where digital payments, remittances, mobile banking and transaction platforms are becoming increasingly important sources of customer acquisition and revenue.
But digitalisation alone will not solve the problem if new services remain heavily dependent on regulated transaction charges.
The more sustainable solution is likely to involve a broader earnings mix combining transaction volumes, lending income, investment income and other financial services.
Strong capital provides breathing room
POSB nevertheless enters the second half with considerable financial buffers.
Its 36.56% capital adequacy ratio is almost three times the regulatory minimum, while liquidity remains exceptionally high.
That gives management room to reposition the balance sheet without immediately facing a capital constraint.
However, shareholder demands are also becoming more significant.
Mutapa Investment Fund has introduced a policy requiring POSB to distribute 50% of net profit, while the bank declared a record US$5.14 million dividend in July. POSB also paid Mutapa ZWG16.23 million in management fees during the first half, up from ZWG13.94 million.
The distributions do not currently threaten the bank’s capital position, but they raise the hurdle for internally generated capital if profitability remains under pressure.
The bigger Zimbabwe banking story
POSB’s first-half results illustrate a broader transition taking place in Zimbabwe’s financial system.
Banks are operating in an environment where monetary conditions are changing, regulatory intervention is altering the economics of transaction banking and customers increasingly expect digital and cross-border services.
At the same time, demand for household credit and mortgages remains relatively strong, while corporate and SME credit demand is not expanding at the same pace.
The consequence is a potential mismatch between deposit mobilisation and productive credit creation.
POSB has demonstrated that it can attract funding. What remains unresolved is whether it can deploy that funding into sufficiently profitable assets without compromising liquidity, asset quality or capital strength.
The bank’s 2.09% NPL ratio provides some comfort on credit quality. The falling loan-to-deposit ratio, however, indicates that a substantial portion of the new funding is still being absorbed by money-market instruments rather than customer lending.
Investors will focus on earnings conversion
The second half of 2026 will therefore be less about whether POSB can grow its balance sheet and more about whether it can improve earnings conversion.
The critical metrics will be the recovery of fee income, growth in net interest income, the cost of term funding, the cost-to-income ratio and the extent to which new lending can broaden beyond households and mortgages.
The market’s broader lesson is equally important.
Zimbabwe’s banks can mobilise deposits even in a difficult economic environment. The harder task is converting those deposits into productive, risk-adjusted returns.
For POSB, the 42% decline in profit is therefore not simply a weak earnings result. It is evidence of a banking model in transition, moving from a high-fee retail franchise towards a more conventional balance-sheet model at precisely the point when the cost of funding is rising.
The bank has the liquidity, capital and customer base to make that transition.
What it has yet to demonstrate is that the enlarged balance sheet can generate earnings at a rate capable of replacing the income lost from its traditional transaction franchise.
