Zenith Bank Nigeria Plc gives more money to investors in form of dividend than its peers in Emerging and Frontier Markets (EFM) as the lender recorded double digit growth in net income even amid the coronavirus headwinds.
Data gathered by Chapel Hill Denham showed the Nigerian bank has a dividend yield of 16.52 percent as at September 8, 2020, thatcompares with United Bank for Africa (UBA), (15.20 percent); Guaranty Trust (Gtbank), (11.20 percent); KCB (Kenya), (10 percent); Access Bank, (10.0 percent); Stanbic IBTC Holdings, (9.80 percent). Others includes: Firstrand (South Africa), (7.60 percent); Banca (Romania); (5.30 percent); QNB (Qatar); (3.30 percent); VTB (Russia); (2.10 percent); GCB (Ghana), (1.80 percent); GIB (Egypt), and ITAU, (Brazil).
A high dividend yield means stocks of Zenith Bank are much more attractive, an entry point for investors that want to add to their investment portfolio.
Analysts attribute the impressive performance of the lender to tight risk management and proactive restructuring of loans relating to the vulnerable sectors. Analysts at Chapel Hill Denham said they have placed a “Buy” rating on the stock of Zenith with a Target Price of N37.50.
Zenith Bank has one of the strongest returns on equity among its peers in EFM. What this means is that the lender has utilized the resources of its shareholders in generating higher profit.
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“Given Zenith net long term foreign exchange position of $1 billion; we see foreign exchange revaluation gains and strong fee and commission income, uplifting profit after tax (PAT) in full year 2020,” said analysts at Chapel Hill Denham.
Despite the unprecedented macroeconomic uncertainties caused by a sudden drop in oil price and the coronavirus pandemic, Zenith Bank recorded double digit growth in net income. For instance, net income increased by 16.81 percent to N103.82 billion in June 2020 as against N88.88 billion the previous year.
Similarly, net interest income was up 10.41 percent to N157.41 billion as at June 2020 from N142.51 billion the previous year. The growth in net interest income was largely driven by a 17.39 percent reduction in interest expense to N 59.54 billion in the period under review.
Zenith net interest margin (NIM) increased to 9.0 percent in the period under review as against 8.60 percent the previous year; that validates the lender’s ability to deliver optimal pricing for its interest-bearing assets and liabilities in a declining yield environment.
As a result of inflationary pressures and the Group’s conservative approach towards impairment charges in the current elevated risk environment, cost-to income ratio increased to 54.30 percent in June 2020 from 53.20 percent the previous year.
The lender is reaping the reward of having a healthy risk management and well diversified loan portfolio across sectors as Non-performing Loans (NPLS) reduced to 4.70 percent- which is below the regulatory threshold- from 5.30 percent the previous year.
Capital and liquidity ratios –well above regulatory requirements of 30 percent for Liquidity and 15 percent for Capital Adequacy Ratio.
The bank launched its Agency Banking in June 2019 and has experienced impressive growth in both value and volume of transactions. For instance, total value of electronic product transactions surged by 81 percent to N17.05 billion as at June 2020 as against N9.46 billion as at June 2019.
Similarly, total volume of transactions spiked by 62 percent 393.50 million in the period under review from 243.30 million the previous year.
Zenith Bank and peer rivals are operating in tough and unpredictable macroeconomic environment, and the coronavirus pandemic and the sudden drop in oil price is a triple whammy for the industry.
Nigerian banks have seen bad loans balloon as a lockdown and social distancing measures put in place by government hindered valued customers across sectors could not pay interest on money borrowed.
That’s reminds investors of the dark days of 2016 when a precipitous drop in the price of oil of mid-2014 stoked a severe dollar scarcity that tipped the country in its first recession in 25 years. The sectors was exposed to the oil and gas while asset quality deteriorated.
Analysts expect loan growth to be muted as the economic slowdown does not support loan disbursement.
Coming into 2020, interest and non-interest income component of revenue were under pressure because banks had been forced to lower interest rates earlier in a bid to meet the LDR.
Furthermore, the low interest rate environment and declining rates on fixed income securities (T-bills, OMO and bonds) as well as the increase in the regulatory cash reserve ratio from 22.5 percent to 27.5 percent means that overall asset yield will reduce.
Expectedly, the cumulative interest income of the largest banks on the bourse declined by 1 percent to N1.37 trillion in June 2020, from N1.38 trillion the previous year, according to data gathered by Businessday.
Fitch Ratings has predicted that the Central Bank of Nigeria’s (CBN) cash reserve requirement (CRR) policy will hurt Nigerian banks’ earnings.
“The Central Bank of Nigeria has been highly interventionist,” Bloomberg quoted senior director for Europe, Middle East and Africa bank ratings at Fitch, Mahin Dissanayake, to have said during an interview.
