THUR, APRIL 30 2020-theG&BJournal- ZENITH BANK released its unaudited Q1-20 financials Wednesday, showing that the bank recorded moderate growth in earnings, relative to the corresponding period of the prior year. Gross earnings grew year-on-year, supported by non-interest income, as interest income declined despite growth in income from loans and advances. The trickledown to the bottom-line was partly offset by the growth in expense lines, leading to a moderate expansion in earnings-before-taxes.
Interest income declined by 6.7% y/y to NGN114.33 billion, driven by weaker income from investment securities (-36.1% y/y to NGN232.95 billion), although income from loans to customers grew (+15.8% y/y to NGN67.54 billion).
We note that the growth in interest income from loans and advances reflects the continued expansion of the bank’s risk asset portfolio (+11.9% y/y to NGN2.58 trillion), as the bank has strived to meet the minimum LDR limit of 65.0%.
Also, interest expense declined by 9.7% y/y to NGN32.83 billion, reflecting lower interest cost on borrowings (+12.0% to NGN10.96 billion), even as cost of deposits from customers (+19.0% to NGN21.87 billion) rose. Amid the decline in interest expense, net interest income settled lower at 5.4% y/y to NGN81.50 billion. After accounting for credit impairment charges (+88.5% to NGN3.95 billion), Net interest income (ex-LLE), dipped by 7.7% y/y.
Continuing the trend during the year, non-interest income (NII) was strong, settling at 42.8% higher y/y to NGN46.64 billion. The strong growth recorded was supported by expansions in FX revaluation gains (+339.4% y/y to NGN14.68 billion) and gains on investment securities (+98.0% y/y to NGN15.47 billion). This expansion in NII, offset the decline in net interest income and led to an expansion in operating income by 6.4% y/y to NGN124.19 billion.
Operating expenses growth was moderate, as the bank continued to focus on cost management in the face of weak gross earnings growth. Opex grew marginally by 10.1% y/y to NGN65.40 billion, with the most pressure exerted by other operating expenses (+16.6% y/y to NGN21.22 billion). Consequent on the OPEX growth relative to operating income growth, cost-to-income ratio (ex-LLE) settled higher at 52.7% relative to 50.9% in the prior year. Also, profitability was stronger, with profit-before-tax settling 2.6% higher year-on-year, while profit-after-tax settled 0.6%, on account of a 17.0% growth in income tax expense.
In our view, the bank’s macro-prudential ratios are strong, with all ratios settled within statutory limits. The bank’s non-performing loans ratio settled at 4.6% from 4.3% at FY-19, despite an expansion in loans to customers (+11.0% to NGN2.74 trillion). Similarly, the bank’s capital adequacy (19.60%) and liquidity (41.8%) ratios are strong and signify that the bank has ample headroom for growth over the short-term. However, given the significant expansion of the bank’s loan book over the last two quarters, to drive its loans-to-deposits ratio (71.7%) above the minimum LDR of 65.0%, we do not expect substantial loans growth over the coming quarter.
Cordros Research comment: ‘’The bank’s performance remains in line with expectations for FY-20. We expected core income growth to be weak at the start of the year, although overall performance should be stronger as non-funded income expands on FX revaluation gains. We are reviewing our estimates.’’-With Cordros Research
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