Market Report

Zenith Bank profit grows on level interest expense, foreign currency gain


October 26, 2016 | 12:50 am
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Zenith Bank’s profit has grown by a double digit in the third quarter of 2016, due to level interest expense and foreign currency revaluation gain, an impressive performance that beat analysts’ expectation.

Nigeria’s second largest lender by market value continues to attract investors due to its reputation for strong risk management, a well built capital base and its ability to utilize owners’ resources in bolstering profit.

For the first nine months through September 2016, Zenith Bank’s net income increased by 20.45 percent to N100.07 billion as against N83.05 billion the previous year. Operating profit moved by 13.30 percent to N262.62 billion in the period under review as against N231.78 billion last year.

The strong growth profit was due to a 323.63 percent surge in foreign exchange revaluation gain to N31.01 billion and a flat interest expense and similar charges to N95.85 billion in the period under review.

Some Tier 1 lenders in Africa’s populous nation have had third profit underpinned by the sudden devaluation of the naira by the apex bank.

The central bank in June adopted a flexible exchange rate policy after pegging the currency at N197-N199 for 15 months. That saw the naira lose 40 percent of its value to the US currency.

The market immediately reacted to Zenith Bank’s impressive performance as share price increased by 1.69 percent to N15 2:30 pm on the floor of the exchange, making the market capitalization move to N470.94 billion. Its stock was up +6.26 percent ytd.

Zenith Bank’s growth wasn’t limited to the bottom lines alone as interest income rose by 11.29 percent to N285.67 billion in the period under review, thanks to effective pricing.

The growth at the interest income was due to a 70 percent and 10.63 percent increase in government and other bonds and interest on loans and advances to N38.44 billion and 208.45 billion respectively.

Nigeria’s lenders have been grappling with a sharp fall in oil price and rising Non Performing Loans (NPLs) as evidenced in poor assets quality.

The ratio of NPL to total credit rose to 11.7 percent at the end of June from 5.3 percent at the end of 2015, according to the CBN website. The ratio is above the 5 percent threshold set by the Abuja-based bank.

Moody’s investors Service said that it expects NPLs to increase to about 12 percent over the next 12 months.

Five largest lenders, which together hold 57 percent of the country’s banking assets, “are able to absorb all losses under our severe stress scenario,” Moody’s said. Guaranty Trust Bank Plc showed “the greatest resilience” and the other four banks were Zenith Bank Plc, Access Bank Plc, United Bank for Africa Plc and First Bank of Nigeria Ltd., the ratings company said.

Despite the macroeconomic headwinds ensnaring most companies in Nigeria, Zenith Bank showed resilience and remained efficient. Its net margins moved to 26.31 percent in 2016 from 24.63 percent as at September 2015, according to data gathered by BusinessDay.

The Nigerian lender is aggressive about lending amid liquidity squeeze as loans to deposit ratio jumped to 90 percent in 2016 from 73.01 percent as September 2015.

Similarly, loans and advances to customers was up 31.52 percent to N2.42 trillion while deposit from customers moved by 6.74 percent to N2.69 trillion in the period under review.




October 26, 2016 | 12:50 am
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