Zenith Bank: Increase in non-interest income drives profit
By Kayode Tokede
Zenith Bank plc released its unaudited result and accounts for third quarter ended September, 2020 with significant increase in Non-Interest Income (NII) that drive growth in profits.
The bank thus struggled to grow gross earnings and recorded decline in net interest income following a low-yield business environment during the period.
The lender’s growth in profit was achieved through optimization of its net income on fees and commission, trading gains and other operating income that drive NII by 11 per cent gain.
Zenith bank in the period under review reported one per cent drop in Interest income as net interest income gained five per cent due to a challenging macro-environment.
With one per cent increase in profit after tax, the group Earnings Per Share gained six per cent to N5.10 in Q3 2020 as against N4.80 in Q3 2019.
Nigerian NewsDirect gathered that the lender in 2019 financial year paid an interim dividend of N0.30 to shareholders and coupled with the full dividend of N2.50. This brings the total dividend paid to shareholders to N2.80 in 2019 financial year.
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.
This total dividend of N2.80 in 2018 while in 2017, the total dividend paid to shareholders was N2.70.
The Group’s unaudited results for the period under review shows a stable performance in balance sheets position as customer deposits and gross loans advance by seven per cent and nine per cent to drive total assets cross the N7.97.trillion as at September 30, 2020.
The solid financial performance for the period affirms Zenith’s Bank industry leadership position in profits, resilience and consistency in achieving its strategic objectives despite the challenging business environment.
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.
Increase in NII, effective management in cost boost profits
Zenith Bank’s for the period under review reported gross earnings gained four per cent to N508.98billion in Q3 2020 as against N491.3billion reported in Q3 2019.
The financial institution reported Interest and similar income of N318.8billion, one per cent decline from N321.94billion reported in Q3 2019, while Interest and similar expense dropped by 13 per cent to N93.64billion in Q3 2020 from N107.3billion reported in Q3 2019.
This, translates into net interest income that gained five per cent to N225.18billion in Q3 2020 as against N214.63billion in Q3 2019.
Continuing the trend during the year, Non-Interest Income (NII) gained 11 per cent to N173.5billion in Q3 2020 compared to N156.76billion in Q3 2019.
The strong growth recorded was supported by expansions in fees and commissions income and gains on investment securities.
Total operating expenses growth was muted, as the bank continued to focus on cost management in the face of weak income growth.
Total operating expenses grew by 11 per cent to N196.3billion in Q3 2020 from N176.9billion in Q3 2019, with the most pressure exerted by personnel expenses.
Consequent on the muted Opex growth relative to operating income growth, cost-to-income ratio (ex-LLE) settled lower at 52.5 per cent relative to 50.1per cent in the prior year.
For the period year ended September 30, 2020, the Zenith Bank Group’s profit before tax gained one per cent to N177.28billion in Q3 2020 as against N176.18 billion reported in Q3 2019 while profit after tax rose by six per cent from N159.32 billion in Q3 2020 compared to N150.7billion reported in Q3 2020.
With growth in profits, Zenith Bank’s Return on average equity (ROAE) closed Q3 2020 at 21.5 per cent as against 23.8per cent reported in Q3 2019 while Return on average assets (ROAA) rose to three per cent from 3.40per cent in Q3 2019.
The group net Interest Margin (NIM) dropped to 8.30 per cent in Q3 2020 as against 8.70 per cent in Q3 2019, as cost of funds dropped by 2.20 to 3.00er cent in Q3 2019.
CBN policy drives gross loan &advances to customers
The Group closed the period with double-digit increase in total assets amid growth in gross loans and advances to customers and customers deposits.
The total assets of Zenith bank grew by 26 per cent to N7.97trillion as at September 30, 2020 from N6/35trillion reported in full year ended December 31, 2019.
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 and Zenith bank in nine months grew gross loans by 17 per cent to N2.89 trillion over N2.46trillion reported in 2019.
The group’s retail customers’ deposits growing by 58 per cent to N1.75 trillion from N1.11trillion recorded in 2019, a reflection of increasing share of the industry’s deposits and customers’ confidence in the Zenith brand.
In addition, total customer deposits closed September 30, 2020 at N5.2trillion from N4.26trillion reported in 2019.
Furthermore, Zenith Bank’s total equity added 10 per cent to N1.03reillion as at September 2020 from N941.9 billion reported in 2019.
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 4.80 per cent in Q3 2020 from 4.95 per cent in Q3 2019, below five per cent threshold required by CBN.
In addition, despite the tight liquidity, the group’s liquidity ratio closed the period at 67.4 per cent from 57.3 per cent in Q3 2019.
Zenith Bank’s Capital Adequacy Ratio (CAR) closed Q3 2020 at 21.5 per cent from 22 per cent in Q3 2019, 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.
Points to consider
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 management had promised to be a dominant player in the money market space to drive up income and profitability going forward.
“Going into the final quarter of the year, we will remain resilient as we keep adapting to the headwinds in the operating environment and continue to deliver enhanced customers experience and stakeholders value,” the management of Zenith bank explained.
The Group’s efforts to deepen its roots in the retail segment have started yielding benefits. This has resulted in a remarkable increase in the volume of transactions across various electronic platforms as well as significant customer acquisitions. In conclusion, the bank’s performance remains in line with expectation.
The improved growth in interest income quarter-on-quarter is in line with our prognosis, however, we expect pressure on interest expense in 2020, due to the implementation of the higher Cash Reserve Ratio increase to 27.5 per cent .
We at Nigerian NewsDirect however urge investors to BUY Zenith Bank shares.
