Zenith Bank: Impressive Growth in Key Fundamentals

Darasimi Adebisi

Last Friday, Zenith Bank Plc released its audited result and accounts for half year (H1) ended June 30, 2021 with impressive growth in key fundamentals amid domestic and foreign macro economy headwinds.

Despite the challenges, the most profitable bank in Nigeria announced N106.12 billion profit in H1 2021, about two per cent increase from N103.83 billion reported in H1 2020
Profit before tax also rose by three per cent to N117.06 billion in H1 2021 from N114.12 billion reported in H1 2020.

With growth in profits, Zenith Bank Plc’s return on average equity (ROAE) closed H1 2021 at 18.8 per cent as against 21.5 per cent reported in H1 2020 while return on average assets (ROAA) dropped to 2.5 per cent from three per cent in H1 2020.

Overall, the significant reduction in interest expense by 26 per cent and growth in non-interest income by nine per cent gave rise to improved profitability.
The bank in the period under review was able to effectively utilized its fees and commission, trading gains business position to drive Non-Interest Income (NII).
Zenith Bank in H1 2021 result and accounts proposed interim dividend of N0.30 to shareholders, to maintain a track record for the fourth consecutive time.

For 2020 financial year, Zenith Bank declared interim and final dividend of N0.30 and N2.70, to make it N3.00 total dividend, while in 2019, it was N0.30 interim dividend and N2.50 final dividend to complete the year with N2.80 total dividend.
The group in 2018 had proposed of N0.30 and a final dividend of N2.50 per share (December 31, 2017: interim; N0.25, final; N2.45) from the retained earnings account as at December 31, 2018.

Balance Sheets Position
The Group’s audited results for the period under review shows a stable performance in balance sheets position as customer deposits and gross loans advance by eight per cent and three per cent to drive total assets to close the period with total assets of N8.52 trillion.
The solid financial performance for the period affirms Zenith’s Bank industry leadership position in profits, resilience and consistency in achieving its strategic objectives.

Zenith Bank offers its clients a wide range of corporate, investment, business and personal banking products and solutions. It is one of the biggest and most profitable banks in Nigeria.
With two per cent increase in profit after tax, the group Earnings Per Share gained two per cent to N3.38 in H1 2021 as against N3.30 recorded in H1 2020.

Drop in impairment, increase in NII, boost profits
Zenith Bank for the period under review reported gross earnings dropped 0.1per cent to N345.56 billion in H1 2021 as against N346.09billion reported in H1 2020. The low-interest environment also affected the net interest margin, which declined from nine per cent to 6.5 per cent in the current year due to the re-pricing of interest-bearing assets. The financial institution reported Interest and similar income of N203.9 billion, six per cent decline from N216.95 billion reported in H1 2020, as yields from some interest-bearing assets declined.

THISDAY gathered that drop in Zenith Bank’s yield from Treasury Bills contributed primarily to decline in interest and similar income reported in the period.
Yield from Treasury Bills interest income dropped by 29 per cent to N20.29 billion in H1 2021 from N28.38billion reported in H1 2020.

Interest Income
Interest income from loans and advances to customer, thus grew by 5.5 per cent to N135.43 billion in H1 2021 from N128.37 billion reported in H1 2020, while interest from government and other bonds closed H1 2021 at N41.58 billion as against N39.52 billion reported in H1 2020. This was mitigated by a 26per cent drop in interest expense from N59.5 billion in H1 2020 to N44 billion in H1 2021, resulting in an increase in net interest income from N157 billion to N160 billion in H1 2021.

Time deposits was the key factor to Zenith bank’s decline in its interest expenses as it dropped by 42.8 per cent to N14.24 billion in H1 2021 from N24.9 billion recorded in H1 2020, while interest expenses on saving account dipped by per cent to N7.26 billion from N12.62 billion recorded in H1 2020. This translates into net interest income that gained two per cent to N159.94 billion in H1 2021 as against N157.41 billion in H1 2020. Continuing the trend during the year, NII gained nine per cent to N126.771billion in H1 2021 from N116.49billion in H1 2020. The strong growth recorded in NII was supported by expansions in fees and commission income and gains on investment securities, while “Other operating income,” dropped significantly over foreign currency revaluation gain that dropped to N12.5 billion in H1 2021 from N22.02 billion in H1 2020.

However, fees on electronic products closed H1 2021 at N17.05billion in H1 2021 from N 8.94 billion reported in H1 2020 while Account maintenance fee rose by 53.5 per cent to N14.48 billion in H1 2021 from N9.4 billion reported in H1 2020. Impairment loss on financial and non-financial instruments dropped by 17.24 per cent to N19.8 billion in H1 2021 from N23.9 billion reported in H1 2020. Total operating expenses rose by 10.3 per cent to N149.85 billion in H1 202 from N135.85 billion, and remains below the inflation rate.

Key contributors to total operating expenses are 3.6 per cent increase in Depreciation of property and equipment to N12.93billion in H1 2021 from N12.47billion reported in H1 2020 while Personnel expenses dropped by 3.3 per cent to N37.56billion from N38.9billion in H1 2020.

Operating Expenses
In addition, operating expenses rose significantly by 18 per cent to N97.58 billion in H1 2021 from N83.73 billion in H1 2020. Asset Management Corporation of Nigeria (AMCON) levy of N37.92 billion in H1 2021 from N30.95 billion reported in H1 2020 was the key driver in Zenith Bank’s operating expenses.

The group cost of funds dropped to 1.3 per cent from 2.2 per cent, while cost of risk closed H1 2021 at 1.3 per cent from 1.8 per cent in H1 2020. Also, cost to income ratio dropped by three per cent to 56.1 per cent from 54.3 per cent in H1 2020. The group closed the period with modest increase in gross loans, while total assets remained flat.

Zenith Bank total assets closed June 30, 2021 at N8.52 trillion from N8.48 trillion reported in full year ended December 31, 2020. This impacted on the group Loan to deposit ratio that dropped by six per cent to 51.9 per cent in H1 2021 from 54.7 per cent in 2020 FY.

The Central Bank of Nigeria (CBN) had mandated commercial banks to lend 65 per cent of the deposit to support real sectors of the economy. Zenith bank in half year grew gross loans by three per cent to N2.99 trillion over N2.92trillion reported in 2020 FY.
In addition, total customer deposits closed June 30, 2021 at N5.77 trillion from N5.34 trillion reported in 2020.

The group’s retail journey continues to deliver positive results. Retail deposits grew by N38.2 billion from NGN1.72 trillion to N1.76 trillion year-to-date (YTD).
Savings balances grew marginally by two per cent YTD to close at N1.18 trillion from N1.16 trillion as at December 2020.

The drive for increased retail deposits and a low-interest yield environment helped reduce the cost of funding from 2.2 per cent to 1.3per cent in the current period. Furthermore, Zenith Bank’s total equity added two per cent to N1.14 trillion as at June 30 2021 from N1.12 trillion reported in 2020.

The financial institution continued to maintain a disciplined and prudent approach to loan growth in line with its risk management framework.
The Group Non-Performing Loans (NPL) ratio remained low at 4.51 per cent in H1 2021 from 4.29 per cent in H1 2020, below five per cent threshold required by CBN.

Liquidity Ratio
In addition, despite the tight liquidity, the group’s liquidity ratio closed the period at 69.9 per cent from 66.2 per cent in H1 2020.
Zenith Bank Plc’s Capital Adequacy Ratio (CAR) closed H1 2021 at 22 per cent from 23 per cent in H1 2020, above 16 per cent required by regulatory body being of the Symmetrically Important Banks (SIBs).
This gives headroom for providing support to businesses while creating risk assets opportunities in line with our credit risk management framework.

Despite the macro-economic challenges, alongside CBN’s monetary tightening policy, which constraints most banks income generation and resulting in high cost of funds within the financial system, Zenith Bank has outperformed beyond general expectation.
The financial institution prospect last year was to drive for low cost and appropriately mixed deposit base to fund credit and money market transactions.

The bank in a statement said: “Despite the continued prevalence of COVID-19, there is a cautious optimism that the global economy will continue to recover as vaccination programmes are intensified. Locally,
“Nigeria’s GDP grew by 5.01per cent in the second quarter and inflation which peaked in March 2021 at 18.17per cent is gradually trending down (currently at 17.38per cent as at July 2021).
“The Group is well-positioned to maximise the opportunities that these recovering fundamentals present while leveraging e-technology to expand the retail footprint to deliver improved returns to all its stakeholders.”

Given the performance in the period under review capital market analysts, urged investors to BUY Zenith Bank shares.

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