Zenith Bank plc: Improved earnings by loan growth, operating efficiency

Zenith Bank Plc (Zenith Bank) in its recently released third quarter results for the period ended September 30, 2016, showed strong growth at both the top and bottom line. The impressive result means the lender has surmounted the headwinds caused by lower oil price and exposure to the oil gas.

The Bank’s management was able to grow margins, improve key rations, while maximizing the value of share holders. Zenith Bank has a good and consistent dividend payout to its investors as it paid a dividend of 160 kobo per share for FY12, 175 kobo per share for both FY2013 and FY2014, and 180 kobo per share for FY2015.The Bank also paid 25kobo per share interim dividend for H1 2016.

This translates to a dividend yield of 3.36 percent. Zenith Bank has a market capitalization of N467.80 billion while share holders fund as at September 30 2016 stood at N659.59 billion.

Top line earnings rose significantly amid varying tough operating environment. Zenith Bank posted a significant rise of 12.91 percent in gross earnings to N380.35 billion in September 2016 as against N336.85 billion the corresponding period of 2015; largely driven by interest income which grew by 11.27 percent to N285 billion compared to N256.73 billion recorded over the same period. Interest expenses were up less than one percent to N95.85 billion in September 2016 from N95.33 billion as at September 2015 despite the a high interest rate environment. The central bank has increased the MRR to 12 percent from 14 percent previously held as it seeks to curb inflation and attract the necessary foreign direct investment. Zenith Bank’s interest on borrowed funds spike by 141 percent to N26.65 billion in the period under review on the back of Naira devaluation and rollover of matured borrowings at higher interest rates. Expectedly, net interest income and similar charges increased by 10.74 percent to N167.95 billion in September from N151.67 billion as at September 2015.

Significant Growth in Non Interest Income

The Bank reported noninterest income of N94.67 billion for the period ended September 2016 from N80.33 billion the corresponding period; reflecting a growth of 18 percent. The growth in non interest income was supported by expansion in trading and other income by 230 percent to N31.98 billion.

Impressive Growth in Profitability on the Back of Strong Loan growth and Improved efficiency The bank’s strong loan growth and improved efficiency contributed to the leap forward in profit. Zenith Bank has been able to sustain an effective cost management strategies and hence profitability.

This re-known efficiency is also sustained in the period as the Bank’s cost to income ratio declined 2.40 percent to N53.80 percent in September 2016 from 55.10 percent as at September 2015 Total operating expenses were up by 10 percent to N141.36 billion in September 2016 as against N127.94 billion as at September 2015; driven largely driven by the consistent rise in inflation, Asset Management Corporation of Nigeria (AMCON) charges, Nigeria Deposit Insurance Corporation (NDIC) premium and foreign currency expenses (due to Naira devaluation).

The consistent growth in gross earnings and effective management of expenses and escalation in interest on loans and advances help bolster profitability. Thus, pretax profit grew by 16.55 percent to N121.27 billion in the period under review from N104.05 billion the previous year, while net income grew by 20.44 percent to N100.07 billion in September 2016 as against N83.08 billion as at December 2015.

Strong Assets Quality

The bank’s balance sheet reflects steady progress in the bank’s performance over the past years. Total assets increased by a double digit 16.16 percent to N4.65 trillion in September 2016 from N4 trillion the same period of the corresponding year of 2015. The growth in total assets can be attributed to significant increase in property and equipment, assets pledged as collateral and treasury bills by 15.12 percent, 33.74 percent and 12.30 percent to N100.17 billion, N354.48 billion and N424.40 billion respectively.

Gross loans and advances were up 21.92 percent to N2.42 trillion as against N1.98 trillion the previous year; driven by Naira devaluation. Deposits from customers increased by 5.24 percent to N2.69 trillion in September 2016 from N2.55 trillion as at December 2015;driven by strong contributions from the retail segment. Of the total deposit, demand deposits account for 50.70 percent, domiciliary, 20.30 percent; term, 16.60 percent; and savings, 12.73 percent.

Total liabilities increased by 16.01 percent to N3.95 trillion in September 2016 compared to N3.41 trillion as at December 2015.Shareholders fund increased by 17.03 percent to N695.59 billion in September 2016 from N594.35 billion as at September 2015. The Nigerian lender is aggressive about lending amid liquidity squeeze as loans to deposit ratio jumped to 72.30 percent in 2016 from 68.50 percent as December 2015.

The Bank’s well diversified loan portfolios or healthy asset quality amid exposure to the oil and gas means the adoption of a complete and integrated approach to risk management has paid off. Zenith Bank’s Non Performing Loans (NPLs) increased to 2.23 percent in September 2016 from 1.63 percent the previous year, which is lower than the 5 percent regulatory threshold. The total NPLs of moved by 89.85 percent to N55.54 billion in September 2016 from N30.73 billion as at September 2015.

Return on average equity (ROAE) jumped to 20.70 percent in the period under review as against 19.70 percent as at September 2015 while the return on average assets (ROAA) increased to 3.10 percent in the period under review as against 2.90 percent as at September 2015. Net interest margins moved to 7.60 percent in the period under review from 7.90 percent as at September 2015.

Capital and Liquidity Ratios above regulatory requirement Zenith Bank’s liquidity ratio was 55.20 percent as at the end of September 2016, which is significantly higher than the 30 percent regulatory minimum while capital adequacy ratio remained well above the minimum statutory requirement of 15 percent with capital adequacy ratio of 19 percent.

Credit Rating/Certifications

Standard and Poor’s ratings for Zenith Bank Zenith Bank are: B/Stable/B (Issuer Credit Rating) and ngBBB/ ngA-2 (National Scale Rating), being the highest rating awarded to any Nigerian bank and in line with the country’s risk rating. Fitch ratings are: 1) Long-term foreign currency IDR: ‘B+‘- Stable Outlook; 2) Short-term foreign currency IDR: ‘B‘; 3) National Long-term rating: ‘AA-(nga)’; 4) National Short-term rating: ‘F1+(nga)’ .

The bank became the first Nigerian institution to be awarded a triple ISO certification by the British Standards International (BSI).

Multilateral Financing Partnerships

Zenith Bank Plc and the French Development Agency (Agence Francaise de Development (AFD), operator of France’s bilateral development finance mechanism, have signed a US$100 Million power sector credit facility.

The on-lending term loan being made available to Zenith Bank is to support new investments in the CAPEX (capital expenditure) of Distribution Companies (DISCOs) in the power sector in Nigeria. 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 Nigerian.

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.

About Zenith Bank

Zenith Bank Plc 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.

The bank was established in May 1990 and started operations in July same year as a commercial bank. It became a public limited company on September 17, 2004 and was listed on the Nigerian Stock Exchange on October 21, 2004 following a highly successful Initial Public Offering (IPO). Zenith Bank listed on the London Stock Exchange via a non-capital raising GDR on March 21, 2013.

The Bank presently has a shareholder base of over one million, an indication of the strength of the Zenith brand. It is headquartered in Lagos, Nigeria. With over five hundred (500) branches and business offices nationwide Zenith Bank has presence in all the state capitals, the Federal Capital Territory (FCT) and major towns and metropolitan centres in Nigeria.

The Bank’s expansion is not limited to Nigeria as Zenith became the first Nigerian bank in 25 years to be licensed by the Financial Services Authority (FSA) in the UK for the commencement of banking operations by Zenith Bank (UK) Limited in April, 2007. This is in addition to its presence in Ghana, Zenith Bank (Ghana) Limited, Sierra Leone, Zenith Bank (Sierra Leone) Limited, Gambia, Zenith Bank (Gambia) Limited and a representative office in Johannesburg, South Africa, Beijing, China and Dubai branch of Zenith Bank UK.