Zenith Bank Plc: Interest and non interest income drives earnings


October 31, 2017 | 2:15 am
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Zenith Bank Nigeria Plc just released its third quarter financial results that showed the lender recorded double digit growth at top (revenue) and bottom line (profit) amid a volatile and unpredictable macroeconomic environment.

The bank has been consistently growing earnings even the Zenith of the economic downturn of 2016 that saw the country slip into its first in 25 years.

The bank uses its strong balance sheet and liquidity as well as efficient trade finance processes and services, to continuously grow and support businesses.

Zenith has been pouring wine from the flagon into the golden goblet of shareholders with its steady dividend payment.

The Bank paid a dividend of 160 kobo per share for FY2012, 175 kobo per share for both FY2013 and FY2014, and 180 kobo per share for FY2015

A total dividend amount of 202 kobo per share (25 kobo interim and 177 kobo final) was paid for FY2016 and 25 kobo per share interim dividend proposed for H1 2017.

Non Interest and Interest Income drives gross earnings

For the first nine months through September 2017, Zenith Bank’s gross earnings increased by 39.70 percent to N531.26 billion in September 2017 compared to N380.35 billion as at September 2016.

Interest income and similar charges spiked by 26.60 percent to N361.78 billion in the period under review from N285.67 billion as at September 2016.

A breakdown of interest income shows interest income on loans and advances to customers and Income from Treasury bills (T-bills) increased by 15.63 percent and 125.35 percent respectively to N241 billion and 84.33 billion respectively.

Noninterest income surged by 79.15 percent to N169.47 billion in September 2017 from  N94.67 billion as at September 2016; driven by   a 53 percent increase in fee and commission income to N71.02 billion.

Net interest margin (NIM) increased to 7.20 percent in the period under review from 7.60 percent the previous year. The high interest rate on time deposits contributed significantly to the decline in NIMs.

Cost Optimization pays off as profit surge

Zenith Bank’s net income surged by 35.48 percent to N129.23 billion in September 2017 from N95.38 billion as at September 2016. Profit before tax was up 30.80 percent to N152.55 billion  in the period under review from N116.58 billion as at September 2016.

The bank’s bottom line (profit) was underpinned by a 974.14 percent surge in Treasury bill (T-bill) Trading income to N52.88 billion as the lender continues gain traction in the electronic banking space.

Zenith Ban’s cost-to-income ratio declined to 52.90 percent in the period under review from 53.8 percent as at September; driven by perational efficiencies and cost optimization efforts.

Total operating expenses increased by 17.40 percent to N171.45 billion in September 2017 as against N146.05 billion as at September 2016. High inflation rate, Naira devaluation and Information Technology cost contributed significantly to the 17.40 percent increase in total operating expenses.

Risk Management Strategy pays off as NPLs below threshold.

Zenith Bank’s strong risk controls have resulted in a largely stable NPL ratio, with robust coverage levels that compare favourably with peers and the sector.

The Nigerian lender’s NPLs stood at 4.20 percent, though higher than the 2.20 percent recorded the previous period, lower than the 5 percent threshold. Cost of risk increased by 107.70 percent to 4.20 percent as against 1.30 percent the previous year.

Further analysis of Zenith Bank’s financial statement shows loans and advances to customers fell by 11.52 percent to N2.15 trillion in September 2017 from N2.42 trillion as at September 2016. The marginal decline of 3.70 percent in Gross loans is reflective of the Group’s cautious approach to its risk assets management due to the evolving economic environment.

The Bank’s total deposits increased by 2.6 percent from N3.0 trillion to N3.1 trillion as it strives to consolidate its effective deposit mobilisation strategy. Zenith Bank’s impairment surged by 115.30 percent to N47.05 billion in the period under review.

Capital and liquidity ratios for the Bank – well above industry requirements of 30% for Liquidity and 15% for Capital Adequacy Ratio (Banks with international authorisation which are also systematically significant).

Analysts are upbeat Nigerian Banks will continue to outperform the NSE ASI in so far as the central bank maintains the current foreign exchange policy.

The introduction of the Investors’ and Exporters’ (I and E) window by the apex bank and the subsequent liberalization of the foreign exchange market have resulted in increased dollar supply.

Zenith Bank’s shares have gained 78 percent year to date (ytd), outperforming 36 percent ytd return on the Nigerian Stock Exchange (NSE) All Share Index (ASI), as analysts expects a slight positive reaction from the market.

The lender’s shares closed at N26.30 percent as of 1:30 pm Lagos while market capitalization stood at N822.27 billion. “Management noted at the last conference call that this rise in loan loss expense was partly due to significant impairments taken from the telecoms sector and the aviation sector, which we believe relates to Etisalat (now 9mobile) and Arik Airline,” said Analysts at CSL limited.

With cash and cash equivalent of N782.39 billion, Zenith Bank has enough fund to pay future dividend and finance future expansion plans.




October 31, 2017 | 2:15 am
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