Zenith Bank Plc: Improved top and bottom line earnings driven by deposit and loan growth

Zenith Bank Plc offers its client a wide range of corporate, investment, business and personal banking products and solutions. The Bank is one of the biggest and most profitable banks in Africa’s largest economy.

The recently released Q3 2015 audited result of Zenith, shows the bank overcoming macroeconomic challenges bedeviling the banking industry.

The Bank’s management was able to consolidate on key ratios such as return on equity and assets and cost to income ratios that signals strong operating efficiency. Zenith lower Non Performing Loans (NPL) ratio means the lender has strong asset quality amid high interest rate environment and foreign exchange restrictions.

Zenith Bank has a good and consistent dividend payout to its investors. The Bank paid a dividend of 160 kobo per share for the year ended December 2012, 175 kobo per share for full year 2013 and full year 2014, and an interim dividend of 25 kobo per share was paid for half-year 2015.
Interest on loans drives interest income

Gross earnings for the first nine months through September 2015 grew by 23.29 percent to N336.85 billion as against N273.73 billion the same period of the corresponding year (Q3) 2014; driven by a 33 percent increase in interest income on loans and advances to N188.41 billion in 2015 from N141.81 billion last year.

On the other hand, interest expense was up by 37 percent to N95.33 billion in 2015 as against N69.64 billion in 2014; due to surge in funding costs. A further break down of component of interest expense showed time deposit increased by 30 percent to N72.35 billion in the period under review compared with N55.54 billion the previous year. Borrowed funds moved by 115 percent to N9.92 billion in 2015 as against N4.611 percent in 2015. Net interest income grew by 12.58 percent to N161.40 billion in 2015 as against N143.36 billion last year.

Diversified revenue base help boost interest income

The bank grew its non interest income by 32 percent to N80.32 billion 2015 from 60.80 billion in 2014. The Group’s continued effort in diversifying its revenue base yielded is responsible for the growth in interest income.

A breakdown of the components of non interest income showed credit related fees increased by 10 percent to N12.36 billion in 2015 as against N11.23 billion; Trading income moved by 73 percent to N15.91 billion the period under review from N9.81 billion last year. Other fees & commissions increased by 26 percent to N23.63 billion in 2015 as against N18.76 billion last year.
Expectedly, Commission on Turnover (COT) decline by 8 percent due to the gradual phasing of COT by the central bank.

Improved operating efficiency help boost profit
Zenith Bank’s pretax profit increased by 19.85 percent to N104.05 billion in September 2015 compared with N86.185 billion in 2014. Net income also followed the same growth trajectory as it grew by 16.95 percent to N83.08 billion in N71.04 billion in September 2014. The growth at the bottom line is the manifestation of the management’s effort in improving efficiency while consolidating on earnings amid macroeconomic headwinds.
Zenith Bank operating income increased by 16.42 percent to N232 billion in September 2015 as against N199.28 billion recorded in September 2014.
On the other hand, operating expenses were up by 14 percent to N127.09 billion in the period under review compared with N111.94 billion last year.

The increase in operating expense is attributable to the consistent rise in inflation and AMCON Charge
Net Interest Margin (NIM) declined marginally year on year by 1.3 percent (from 8.0 percent in the third quarter of 2014 to 7.9 percent in Q3 2015) as yields on government securities dropped during the 3rd quarter of 2015.

The Nigeria lender was efficient in keeping costs at reasonable levels while bolstering top lines as Cost to Income ratio declined YoY by 2.3 percent to 55.10 percent in 2015 from 56.30 percent in 2014. Zenith Group is committed to keeping its cost-to-income ratio under control.

Sustained balance sheet strengthening and growth with strong liquidity
For the first nine months through September 2015, Zenith Bank grew total assets by 12.91 percent to N3.84 trillion from N3.40 trillion in 2014. The growth in total assets was driven by the Bank’s loan resources and loans and advances.
Loans and advances to customer increased by 21 percent to N1.84 trillion in September 2015 as against N1.52 trillion the previous year. A breakdown of loans and advances on the review period showed; Terms loans, 61.6 percent; overdraft, 32.27 percent; on lending facilities, 5.5 percent; and

Advances under leases, 0.7 percent.
Deposit to customers jumped by 10 percent to N2.52 trillion in September 2015 as against N2.30 trillion last year. Deposit to customers comprise of: Demand, 49.5 percent; Domiciliary, 22.7 percent; Term, 18.70 percent; and Savings, 9.70 percent. Zenith Bank is aggressive about lending as loans to deposit ratio moved to 72.44 percent in 2015 as against 66.60 percent last year.

Zenith Bank’s focused risk management via portfolio diversification has paid off as evidenced in its lower Non Performing loans (NPL). Total NPLs reduced by 30.17 percent to N30.73 billion in September 2015 from N44.01 billion last year. The bank’s NPLs reduced to 1.60 percent in 2015 as against 2.80 percent last year. The 1.60 percent NPL is the one of the lowest in the whole industry.

Shareholders’ fund increased by 9.07 percent to N571.50 billion in 2015 as against N523.93 billion over the period, leading to an increase in return on capital employed to owners of the business. Return on Average Equity (ROAE) moved to 19.70 percent in the period under review from 18.70 percent as at December 2014.

Making inroads in global banking
International Finance Corporation (IFC), a member of the World Bank Group, signed a bilateral agreement to provide a $100 million loan facility to Zenith Bank Plc in order to increase the bank’s lending capacity to the various economic sectors, boost economic growth and job creation in Nigeria.
The U.S. Agency for International Development (USAID) and other parties signed an agreement with Zenith Bank to make available $90 million in new private sector financing for the Power Africa Fund. This is first of its kind in Nigeria.

Zenith Bank is rated B+/Stable/B by S and P, being the highest rating awarded to any Nigerian bank and in line with the country’s risk rating. The group adopts a complete and integrated approach to risk management that is driven from the Board level to the operational activities of the bank.
Risk management is practiced as a collective responsibility coordinated by the risk control units and is properly segregated from the market facing units to assure independence. The process is governed by well defined policies and procedures that are subjected to continuous review and are clearly communicated across the group.

There is a regular scan of the environment for threats and opportunities to improve industry knowledge and information that drives decision making. The group maintains a conservative approach to business and ensures an appropriate balance in its risk and reward objectives. Risk culture is continuously being entrenched through appropriate training and acculturation.