Zenith Nigeria Bank Plc, (Zenith Bank), in its recently released audited financial statement for year ended December 2018, showed significant improvement in profitability and key performance ratios.
The second largest lender in Africa’s largest economy has an excellent risk management strategy as Non Performing Loans (NPLs) stood at 4.98 percent amid a challenging operating environment.
It is also efficient in curtailing costs while contemporaneously bolstering profit as cost to income ratio has been ebbing in the last three years.
The bank uses its strong balance sheet and liquidity as well as efficient trade finance processes and services, to continuously grow and support businesses.
Zenith Bank has consistently been rewarding its 369 403 shareholders in form of dividend payment.
An interim dividend of N9.42 billion, being N0.30 per share from the retained earnings account was paid in H1 2018 while an additional N2.50 per share has been proposed as final dividend for 2018 FYE. This will bring the total dividend for 2018 to N2.80per share.
Effective management of expenses bolster profit
Zenith Bank’s profit before tax increased by 16 percent to N231.68 billion in December 2018 as against N199.32 billion recorded the previous year. The uptick at the bottom line was largely driven by improved efficient as evidenced in optimization of cost to income ratio, cost of risk, and reduction in interest expense.
Net income was up by 11 percent to N193.42 billion in December 2018 from N173.79 billion the previous year. The chart shows profit has been growing steadily since 2013 even during the economic recession.
Operating profit was up 8 percent to N457.18 billion in the period under review from N422.73 billion as at December 2017; however, trading gains fell by 49.23 percent to N80.20 billion in the period under review from NI57.97 billion the previous year.
Zenith Bank’s investment in latest technology with a view to reducing cost has paid as total operating expenses increased by mere 1 percent to N225.50 billion in the period under review as against N223.411 billion the previous year.
A quick glance at the chart shows cost to income ratio fell to 49.30 in December 201, this compares with 52.80 percent in 2017, 52.70 percent in 2016, 57.20 percent in 2015, and 57.70 percent in 2014.
Net interest income spikes amid low yield environment
Despite the precipitous drop in yields on short term government securities in 2018, net interest income increased by 15 percent to N295.59 billion in December 2018 from N258 billion the previous year. Average 1 year T-bills yield (2018–15%, 2017–21%).
However, interest income on similar income capitulated to low yield environment as it fell by 7 percent to N440.05 billion in December 2018 from N474.62 billion the previous year.
Improvement in key performance ratio
Zenith Bank remains committed to delivering impressive returns to shareholders as return on average equity (ROAE) increased to 23.80 percent in December 2018 from 22.90 percent the previous year.
Return on average assets (ROAA) was flat at 3.4 percent despite the significant decline in the yield environment for money market instruments and drop in average interest rate on loans and advances to customers.
Net interest margin (NIM) remained flat at 8.9 percent, demonstrating the Group’s ability in delivering optimal pricing for its interest-bearing assets and liabilities even in a declining yield environment.
Cost of funds improved significantly by 40.4 percent YoY, from 5.4 percent recorded in 2017 to 3.1% in 2018. The Group will continue to focus on its drive for low cost deposit mix.
Excellent risk management strategy keeps NPLs below CBN’s threshold
Zenith Bank’s risk management strategy has paid off as Non performing Loans (NPLs) of 4.98 percent is below the Central Bank of Nigeria (CBN)’s threshold. NPLs in absolute figures stood at N100.50 billion in the period under review, from N105.87 billion the previous year.
NPLs by sector showed exposure to the oil and gas stood at 38.23 percent, manufacturing, (31.05 percent); real estate and construction, 13.05 percent; and General trading, (9.92 percent).
NPL coverage ratio increased to 192.40 percent as at December 2018 as against 143.40 percent the previous year; the significant growth in coverage Ratio in 2018 was as a result of IFRS9 implementation
Strong and liquid balance sheet led by securities portfolio and interbank placements.
For the year ended December 2018, Zenith Bank’s total asset increased by 6 percent to N5.95 trillion in December 2018 from N5.59 trillion the previous year.
The significant growth in total asset can be attributed to significant increase in property plant and equipment, treasury bills, and investment security by 11.80 percent, 6.38 percent, and 70.82 percent.
On the other hand, gross loans and advances were down 10 percent to N2.01 trillion in the period under review from N2.25 billion the previous year.
Banks in Africa’s largest economy have refused to turn on the tap on lending because assets quality suffered deterioration when a precipitous drop crude price of mid 2014 hindered customers from paying interest on money borrowed.
Bloomberg reported recently that Zenith Bank is increasing its focus on consumer lending as lower oil prices weigh on the economy, hurting its business customers.
The Lagos-based bank is expecting to expand retail loans as a percentage of total credit to about 4 percent this year from less than 1 percent in 2018, Chief Executive Officer Peter Amangbo. It will achieve this by making a bigger push into personal loans, car financing and mortgages.
“There is a lot we’re doing on revenue,” Amangbo said. “We expect our retail franchise to grow. Our electronic business, our digital banking is growing,” said Amangbo.
Zenith Bank’s total liability increased by 7.32 percent to N5.13 trillion in December 2018 from N4.78 trillion as at December 2017.
Deposit to customer was up 7 percent to N3.60 trillion in the period undr review from N3.43 trillion as at December 2017.
Loans to deposit ratio fell to 44.20 percent in the period under review as against 54.40 percent the previous year.
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, according to Amangbo.
Zenith Bank shares closed at N25.70 as at 2:00 pm on Tuesday February 21, while it has market capitalization of N808.46 billion.
BALA AUGIE
