MON 01 NOV, 2021-theGBJournal- Zenith Bank’s 9M-21 interim financial report reflected relatively weaker core income growth over the period, on a year-on-year basis. Nonetheless, overall bottom line performance was supported by improvements in funding costs and growth in the non-funded income.
The bank recorded a marginal increase in its nine-months EPS to NGN5.11 (+2.4% vs NGN5.07 in 9M-20).
Interest income declined by 3.1% y/y to NGN308.84 billion, depressed by the relatively weaker income from investment securities (-11.7% y/y to NGN94.59 billion) and loans and advances to banks (-66.8% y/y to NGN5.66 billion). That said, the bank recorded a growth in income from loans and advances to customers (+9.2% y/y to NGN206.86 billion), reflective of the positive improvements in risk asset creation (YTD: +8.7% to NGN3.02 trillion in 9M-21).
More significantly, interest expense was down by 20.9% y/y to NGN94.56 billion, reflecting lower interest costs on deposits from customers (-28.9% y/y to NGN42.89 billion) and other borrowings (-6.3% y/y to NGN42.89 billion). Accordingly, the bank’s cost of funds eventually settled 80bps lower at 1.4%.
Following the decline in interest expense, which was enough to mask the decline in funded income, net interest income settled 4.2% higher y/y at NGN234.75 billion.
However, after accounting for credit impairment charges (+14.7% y/y to NGN28.80 billion), net interest income (ex-LLE) settled only 2.9% higher year-on-year. This resulted in the bank’s net interest margin for the period declining to 6.8% from 8.3% in the corresponding period of the prior year.
Non-interest income (NII) generation was strong, settling 11.1% higher y/y at NGN192.77 billion. The strong growth recorded was supported by expansions in net fees and commissions income (+32.4% y/y to NGN78.30 billion), gains on investment securities (+0.9% y/y to NGN90.66 billion), higher recoveries, and dividend income. This expansion in NII, alongside the growth in net interest income, led to a 6.7% y/y increase in operating income to NGN398.72 billion.
However, the growth in operating expenses growth was larger, as it settled 11.5% higher on year-on-year basis, with the most pressure exerted by AMCON levy (+22.5% y/y to NGN37.92 billion) and other operating expenses (+17.6% y/y to NGN86.93 billion) such as IT and maintenance costs. Consequent to the opex growth relative to operating income growth, the bank’s cost-to-income ratio (ex-LLE) settled higher at 54.9% (9M-20: 52.5%).
Overall, profitability was marginally stronger, with profit-before-tax settling 1.4% higher year-on-year. However, the growth in profit-after-tax was further muted (+0.8% y/y to NGN160.59 billion), on account of a 6.9% y/y increase in income tax expense.
Zenith bank’s performance was in line with our expectations in the recovering economic environment. Nonetheless, analysts expect the bank to record stronger income growth as the year progresses on the back of improved risk creation, higher yields obtainable to reinvest maturing assets and strong balance sheet management.
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