• Balance-sheet expansion is yet to replace transaction income as funding costs rise and new lending shifts towards households and money markets
• Net profit fell 42% to ZWG108.5 million as fees and commissions declined 15%
• Deposits rose 37%, yet interest expense surged 151% and net interest income fell 3%
• Money-market assets grew 56% while corporate lending stagnated and SME lending contracted

Harare- People’s Own Savings Bank has expanded its balance sheet aggressively during the first half of 2026, but the additional deposits and lending have yet to replace earnings lost as regulatory measures compress transaction income. Net profit fell 42.1% to ZWG108.5 million from ZWG187.4 million, even as total assets increased 23.5% from December to ZWG4.73 billion and customer deposits climbed 36.9% to ZWG2.66 billion.

The Bank has attributed the weaker result largely to monetary policy measures affecting non-funded income. The numbers support that explanation, although they also expose a second pressure developing inside the funded side of the business.

Fees and commissions fell 15.1% to ZWG445.7 million, with retail banking fees declining 16% to ZWG422.6 million. That erased almost ZWG80 million of revenue. Fees still generated 67.6% of net operating income, down from about 72.5% a year earlier, leaving POSB heavily reliant on the revenue stream under regulatory pressure.

The attempted replacement through lending has not yet delivered equivalent earnings. Interest income rose 13.8% to ZWG242.7 million, helped by a larger loan and investment book. Interest expense, however, increased 151% from ZWG22.8 million to ZWG57.2 million. Net interest income consequently slipped 2.7% to ZWG185.4 million despite substantial balance-sheet expansion.

The funding mix helps explain the compression. Term deposits grew 61.3% from ZWG617 million in December to ZWG995 million by June, substantially faster than overall deposits. Interest paid on term deposits was ZWG54.1 million during the half year compared with ZWG20.7 million in the corresponding 2025 period. POSB has therefore attracted more funding, although a growing portion carries an explicit interest cost.

That changes the economics of the bank’s transition. Cheap transactional deposits supporting high fee income offer a different earnings model from interest-bearing deposits that must be converted into sufficiently yielding assets. POSB is moving towards the second model while the profitability of the first is being reduced by regulation.

Its asset allocation shows that transition remains incomplete. Gross loans and advances increased 20.8% from ZWG1.22 billion in December to ZWG1.48 billion by June. Money-market assets expanded much faster, rising 56.3% to ZWG963.1 million. Interbank placements alone increased from ZWG412.2 million to ZWG663 million, while non-negotiable certificates of deposit rose from ZWG26.7 million to ZWG82.7 million.

The gross loan-to-deposit ratio consequently fell from about 62.9% to 55.5%. A larger deposit base has therefore produced proportionately less customer lending. POSB retains considerable liquidity, with its regulatory liquidity ratio at 72% against a 30% minimum, while capital adequacy stood at 36.56% against the regulatory minimum of 12%.

The constraint is therefore not immediately one of balance-sheet capacity. Where POSB is choosing to deploy that capacity is more revealing. Individual loans increased 43% to ZWG855.2 million and mortgages rose 38.3% to ZWG309.6 million. Corporate lending was almost unchanged at ZWG93.6 million. SME and agribusiness lending fell 22% to ZWG64.9 million, while microfinance exposure declined 32.7% to ZWG150 million.

Individuals now account for almost 58% of gross loans, up from roughly 49% in December. Corporate and SME/agribusiness lending together account for only about 10.7%. That portfolio shift deserves attention alongside POSB’s stated commitment to supporting productive sectors. Household and mortgage lending can generate attractive risk-adjusted yields, especially where payroll deductions or property collateral strengthen recoverability. The bank’s 2.09% non-performing loan ratio remains comfortably below the regulatory threshold, providing evidence that credit quality has so far been protected.

Yet the commercial trade-off is becoming clearer. POSB is preserving asset quality and exceptional liquidity while regulatory changes weaken its dominant fee-income franchise. More deposits are being placed into money markets and household credit, while corporate and SME credit has failed to absorb the new funding at comparable speed.

Operating efficiency compounds that pressure. Operating expenses increased only 2.7% to ZWG551 million, which appears contained in isolation. With operating income falling 8.9%, however, the implied cost-to-income ratio deteriorated from roughly 74.1% to 83.5%. Only 16.5 cents of every dollar of operating income remained as net profit during the period, compared with almost 26 cents a year earlier.

Digital expansion alone will not resolve that if new services recreate dependence on regulated transaction charges. POSB has reintroduced WorldRemit, launched Mastercard cross-border remittances, expanded Paynow to 73 billers and introduced EcoCash float rebalancing. Management explicitly expects some of these initiatives to rebuild fee-based income.

The stronger strategic route is a broader earnings mix: transaction services that generate volume without excessive pricing dependence, higher-yielding credit with controlled risk, and a deposit structure whose cost is matched by asset yields.

There is sufficient capital to undertake that transition. There is also a shareholder claim on the earnings produced. Mutapa Investment Fund has introduced a policy requiring POSB to distribute 50% of net profit, and a US$5.14 million dividend was declared in July. POSB also paid Mutapa ZWG16.23 million in management fees during the half year, up from ZWG13.94 million.

Neither presently threatens capital adequacy, given POSB’s 36.56% ratio. They do raise the hurdle for internal capital generation if profitability remains under pressure.

The next reporting period should therefore be judged less by the absolute size of the balance sheet and more by its conversion into recurring earnings. Fee income remains dominant, term funding has become considerably more expensive, and incremental assets are being accumulated faster in money markets than in corporate lending.

POSB has already demonstrated that it can mobilise deposits: the customer base supplied nearly ZWG717 million of additional funding in six months. The unresolved part of the model is how much of that funding can be converted into durable net interest income without sacrificing the 2.09% NPL ratio.

A recovery would require net interest income to begin growing faster than funding costs, the cost-to-income ratio to retreat from the current 83.5%, and new lending to produce a broader contribution than household credit alone. Until those measures improve, the 42% profit decline remains less a story about a smaller bank than about a larger balance sheet generating weaker earnings conversion.

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