Zenith Bank Plc: A profitable outing

Introduction

Our analysis of Zenith Bank’s 2023 recent annual report shows that the year was quite a profitable one for the bank. Not only did the bank record a commendable growth in its turnover, it was also able to maintain such momentum to its profit.

As a direct fallout, the bank’s profitability ratios (such as profit margin, return on assets, return on equity, net interest margin and pre-tax profit per employee) remained high enough for the bank to remain relevant. It is important to note that the bank is also doing very well in its core banking operations.

Growth indices

For its 2023 financial year, the bank recorded a very commendable 125.4 percent growth in its turnover (inclusive of interest and discount income, and income from non-banking operations). Such turnover rose to an all-time high of N2.13 trillion from N945.6 billion in the preceding year.

It is worthy of note that while the bulk of the bank’s turnover was contributed via interest and discount income, it also stepped up the tempo of its non-core banking operations during the course of the year and earned significantly more money from there.

Pre-tax profit growth rate followed an even more commendable pattern, growing much more steeply as compared to the growth recorded in the prior year. Profit before tax obligations for 2023 stood at N795.9 billion, up from N284.7 billion in the erstwhile year, and translating into a 179.6 percent growth rate. After-tax profit followed the same pattern as pre-tax profit did, growing commendably by 202.3 percent over the preceding year’s level.

Total assets deployed by the bank for the 2023 year improved to a higher level of N20.4 trillion, about 65.8 percent higher than the N12.3 trillion assets deployed in December 2022, while shareholders’ funds advanced to N2.3 trillion from N1.4 trillion.

Profitability ratios

In all ways, the 2023 financial year was a profitable one for Zenith, as it recorded a marked improvement in almost all of its profitability ratios.

First, the bank did well in the execution of core banking operations, as shown by its net interest margin. Zenith recorded a net interest margin of 64.3 per cent. This interest margin, although lower than what the bank recorded in the preceding year, was on par with the industry average for 2023. This lower 64.3 percent net interest margin happened despite the increasing gap between the bank’s lending rate (which grew to 17.5 percent in 2023 from 13.5 percent in December 2022) and its deposit rate (which grew to 2.7 percent from 1.9 percent).

Profit margin also grew to 37.3 percent in 2023 from 30.1 percent in December 2022. What this means is that for every N100 earned by the bank in the course of the year, N37.30 made it to the profit position. This is as compared to N30.10 for the year preceding 2023.

Return on assets (ROA) also recorded an improvement. ROA grew to 3.9 percent in 2023 from 2.3 percent in December 2022. Analysis shows that every N100 worth of Zenith’s assets contributed N3.90 to its pre-tax profit in 2023, up from N2.30 in 2022.

For every N100 equity deployed, the bank made an after-tax profit of N29.10, up from N16.20 in the preceding year. Thus, return on equity for the year was also better than that of the prior year.

Asset quality

The proportion of Zenith’s gross loan stock that became classified in 2023 declined by increasing to 7.6 per cent from 5.8 per cent in 2022. Meanwhile, loan loss reserves for 2023 could cover only 20.4 percent of Zenith’s classified loans.

For 2023, the bank was not as careful to limit the portion of its equity stock that would be wiped out were its classified loans to become totally irrecoverable. Classified loans as a portion of shareholders funds stood at 23.4 percent in 2023, higher than 17.2 percent in 2022.

Staff matters

The bank did very well in matters regarding its employees for the year ended December 31 2023. Pre-tax profit per employee grew to N97.47 million on the average, better than the N35.25 million employees contributed on the average to the bank’s pre-tax profit in 2022.

The bank was, however, generous enough to compensate its employees more in 2023 than it did in December 2022. Average staff cost rose to N15.23 million from N10.69 million within the course of 12 months. This means that there was a N4.54 million addition to what an employee earned (on the average) between December 2023 and December 2022.

Despite the fact that it upped its staff costs, Zenith succeeded in deflating such staff costs as a proportion of income earned. Staff costs as a portion of turnover decreased to 5.8 percent in 2023 from 9.1 percent in December 2022.

Other ratios

Zenith’s equity (a company’s primary and cheapest source of funding) could finance 32.9 percent of the loans and advances it gave out to borrowers, down from 33.4 percent recorded in the erstwhile year.

Also, at 0.6 times, the current ratio was not on par with the industry average for 2023. What this means is that for every N1.00 of short-term obligations, the bank had only 60 kobo in short-term assets, and was not completely able to meet short term debts from short term assets.

Having a debt to equity ratio of 7.8 shows that the bank is using N7.80 of liabilities in addition to each N1.00 of stockholders’ equity. In other words, the bank is using N8.80 of total capital for every N1.00 of equity capital.

Return on equity

Another performance ratio in which Zenith did well was in its return on equity (ROE) of 29.9 percent. Zenith’s ROE for 2023 stood at 29.1 percent.

Return on assets

This was one of the ratios in which Zenith outperformed its peers. Its ROA was 3.9 per cent, higher and better.

Pre-tax profit margin

Although Zenith Bank was not able to grow its gross earnings and pre-tax profit as fast as its peers, it was however better able to translate its turnover into profit. For the 2023 financial year, pre-tax profit margin (which measures a company’s ability to squeeze as much profit as is possible from turnover) for Zenith Bank was 37.3 percent.

Conclusion

On its own, in a stand-alone analysis, Zenith Bank is doing quite well and this should be commended. It remains to be seen, however, if Zenith and UBA will be star performers in the banking industry for 2023, or if 2023 was a generally good year for all Nigerian banks.

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