Zenith Bank: Impressive performance buoy shareholders’ value
By Kayode Tokede
Last week’s release of the audited results for the half-year (H1) ended 30 June 2021, of Zenith Bank Plc, showed impressive performance amid the current steady increase in the nation’s economy.
The bank’s H1 audited result and accounts for period ended June 30, 2021, has again vindicated shareholders and financial analysts who described the bank’s model as a good template for profitable businesses.
The record showed that the bank recorded positive growth across key financial metrics in defiance of the crippling effects of the Covid-19 Pandemic on the overall economy.
The interim financial report showed that the bank recorded earnings growth, albeit marginal.
Zenith bank in H1 2021 result and accounts proposed interim dividend of N0.30 to shareholders, tto maintain a track record for the fourth consecutive time.
This performance was primarily driven by the growth in non-interest income and supported by moderate improvement in funded income, reflecting the new post-pandemic realities.
Also, the bank recorded a significant decline in interest expense which contributed to its overall profitability.
Sustainable increase in top-bottom performance
There is no doubt that Zenith Bank’s half-year 2021 result is a continuation of a culture of improvement performance exhibited in the bank’s 2020 financial year. For instance, the Group’s gross earnings grew by five per cent from N662.25billion in 2019 to N696.45billion in 2020.
Interest income declined by six per cent to N203.93 billion, following declines in income from investment securities (-12.6per cent to N62.84 billion) and loans and advances to banks (-66 per cent to N5.66 billion).
These declines were expected given the lower yields on investment securities and the tighter liquidity pressures causing banks to reduce loans being advanced to other banks.
Both of these contributory lines masked the growth in income from loans and advances to customers (+5.5per cent to N135.43 billion) as risk asset creation edged up by 2.1per cent to N2.84 trillion in H1 2021.
Likewise, interest expense declined significantly by 26.1per cent to N43.99 billion, reflecting the lower cost on deposits from customers (-38.5per cent to N26.16 billion) and despite the higher interest cost on borrowings (+4.9per cent to N17.83 billion).
Consequent to the larger decline in interest expense, net interest income settled marginally higher by 1.6per cent at N159.94 billion. After accounting for credit impairment charges (-17.2per cent to N19.80 billion), net interest income (ex-LLE) settled five per cent higher year-on-year.
Maintaining the trend from last period, non-interest income (NII) settled 8.8per cent higher at N126.77 billion.
This was supported by the significant expansion in fees and commissions income (+42.3per cent to N47.66 billion) and gains from other operating income (+244.6per cent to N7.34 billion).
The impressive NII expansion, alongside the growth in net interest income, led to a 6.8per cent to increase in operating income to N266.91 billion.
Operating expenses, however, also grew at a faster pace (+10.3per cent to N149.85 billion), as all major contributory line items, save for personnel expenses (-3.3per cent to N37.58 billion), recorded growth.
Particularly, the respective 22.5per cent and 16.8per cent growth in AMCON levy and NDIC premium drove costs higher.
Consequent to the higher opex growth relative to operating income, the bank’s cost-to-income ratio (ex-LLE) settled higher at 56.1per cent (H1 2020: 54.3per cent).
Overall, profitability was stronger, with profit-before-tax 2.6per cent higher year-on-year. However, profit-after-tax expansion settled at 2.2per cent year-on-year growth (N106.12 billion), on account of a 6.2per cent increase in income tax expense.
Although the nation’s economy just recovered from a recession, yet the Group result showed growth in profit before tax of three per cent, from the N114 billion reported in H1 2020, to N117 billion in H1 2021.
Profit after tax, however, rose by 10 per cent to N230.6billion in H1 2021 from N208.8billion reported in H1 2020.
The Group also recorded a nine per cent growth in non-interest income from N116 billion in June 2020 to N127 billion in June 2021.
Furthermore, the results showed that operating expenses grew by 10 per cent year-on-year, but growth remained below the inflation rate, while the Group improved its Earnings per Share (EPS), which grew two per cent from N3.30 to N3.38 for the half-year ended June 2021.
As a mark of its innovation, Zenith Bank was able to restrategise by ramping up its retail business in its bid to take a big chunk of the retail market, an exercise that eventually paid off within the period under review.
Consequently, the Group’s retail journey continued to deliver positive results as retail deposits grew by N38.2 billion from N1.72 trillion to N1.76 trillion year-to-date (YTD).
Another feature of the impressive result was the significant reduction in interest expense by 26 per cent and growth in non-interest income by nine per cent culminated in improved profitability.
Also, the financial institution’s savings balances grew marginally by two per cent YTD to close at N1.18 trillion, from N1.16 trillion as of 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 1.3 per cent in the current period.
The Group also increased total customer deposits by eight per cent to close the period at N5.77 trillion, demonstrating growth in its market share, just as total assets grew marginally to N8.52 trillion as of June 30, 2021, from the N8.48 trillion recorded as of December 31, 2020.
Despite the COVID-19 pandemic-induced challenges and the challenging operating environment, the Group grew its risk assets as gross loans were up to three per cent year-to-date, from N2.92 trillion to N2.99 trillion.
This was conservatively achieved at a low non-performing loans (NPLs) ratio of 4.51 per cent (FYE 2020: 4.29per cent) and a reduced cost of risk of 1.3 per cent (June 2020: 1.8per cent).
Consequently, it was all praise galore for the management team led by the Group Managing Director, Mr. Ebenezer Onyeagwu for leading the bank in the period of the storm.
Giving a clue into the secret of the bank, its chairman, Mr. Jim Ovia had told the shareholders at its 2020 annual general meeting that it is the tradition of Zenith bank, as a resilient brand to leverage the innate opportunities within the environment and record a performance that further attests to the Group’s sound financial health.
Total deposits were N5.34trillion for the year ended December 31, 2020, representing a 25 per cent increase over the previous year’s figure of N4.26trillion.
During the same period, total assets of the Group grew by 34 per cent from N6.35trillion to N8.48trillion, while shareholders’ funds rose by 19 per cent, from N941.89billion to N1.12trillion.
Zenith Bank Group is the largest bank in Nigeria by total assets size and Tier 1 Capital and is the tenth largest bank in Africa as measured by Tier 1 Capital (The Banker, July 2020).
Zenith Bank is an international bank with operations in the United Kingdom, United Africa Emirates, and three other West African countries apart from Nigeria, namely, Ghana, Sierra Leone, and The Gambia.
In Nigeria, Zenith Bank has a strong franchise and reputation as one of the leaders in key financial variables such as customer deposits, total assets, earnings, and profitability.
Within 30 years of its existence, Zenith Bank has demonstrated its resilience irrespective of the business/economic cycle and witnessed growth in virtually all areas. Its growth is driven principally by strategic business focus and a conservative business model. The group has a stable and experienced management team that is well-positioned for strong execution leading to significant market share opportunities.
And according to the bank’s chairman, the combined intellectual capital and dedication of the staff, Management and Board have shaped Zenith Bank into the world-class institution that it is today.
Speaking at the bank’s last annual general meeting, Ovia explained that over the years, the Zenith Bank brand has become synonymous with leadership in the use of Information and Communication Technology (ICT) in banking and general innovation in the Nigerian banking industry.
The Bank has efficiently deployed its competitive edge of excellent customer services, size, brand name, branch network, and customer reach, stable management as well as motivated workforce, strong capital, and liquidity base to effectively compete in the Nigerian banking landscape.
According to analysts at Cordros Research, “The bank’s performance was in line with our expectations in the recovering economic environment.
“Nonetheless, we expect the bank to record stronger income growth as the year progresses on the back of improved risk creation, higher yields obtainable to reinvest maturing assets and strong balance sheet management. We are reviewing our estimates.”
