WED, 24 AUG, 2022-theGBJournal| ZENITH BANK Plc released its H1-22 interim financial report Tuesday, showing strong earnings growth.
The performance was driven by a combination of core and non-core income growth as the bank benefited from the improved interest rate environment. Consequently, the bank recorded an EPS growth of 5.0% to NGN3.55 y/y (vs NGN3.38 in HY-21), while an interim dividend of NGN0.30/share (same as the corresponding period last year) was proposed, which represents a dividend yield of 1.4% based on the last closing price of NGN22.00 (23 August 2022).
The bank recorded an 18.5% y/y growth in interest income, which settled at NGN241.73 billion. This strong growth was supported by an expansion in income from loans and advances to customers (+20.7% y/y to NGN163.41 billion), reflective of the bank’s increased risk appetite (+4.3% to NGN3.50 trillion in H1-22), while strong income from investment securities (+18.5% y/y to NGN74.45 billion), driven by the higher yields on investment securities, was also supportive.
Similarly, interest expense grew by 29.5% y/y to NGN56.98 billion, driven by increased expense on deposits from customers (+36.8% y/y to NGN35.79 billion), which was reflected in the deterioration of the bank’s CASA, which settled at 90.6% (vs 93.0% in 2021FY). Also, the bank recorded an increase in the cost of borrowing (+18.8% y/y to NGN21.19 billion) despite the decline in interest-bearing borrowings (-3.0% YTD to NGN1.09 trillion).
Following the growth in interest income which outstripped the increase in interest expenses, net interest income expanded by 15.5% y/y to NGN184.74 billion. After accounting for credit impairment charges (+26.9% y/y to NGN25.12 billion), net interest income (ex-LLE) settled 13.9% higher year-on-year.
Growth in non-interest income (NII) was strong during the period, as it expanded by 17.5% y/y to NGN148.98 billion. This is attributed to the gains in investment securities (+43.7% y/y to NGN85.19 billion) and expansion in fees and commissions income (+35.2% y/y NGN64.45 billion). In addition, the aforementioned offset the loss in net foreign exchange revaluation of NGN6.25 billion. As a result, the impressive NII expansion, alongside the growth in net interest income, led to a 15.6% y/y increase in operating income to NGN308.61 billion.
Operating expenses expanded by 19.2% y/y to NGN178.60 billion, with the most pressures exerted by regulatory charges – NDIC insurance premium (+21.2% y/y to NGN9.78 billion), AMCON levy (+16.1% y/y to NGN44.01 billion) and personnel expenses (+5.7% y/y to NGN39.74 billion). Consequent to the OPEX growth relative to operating income, the cost-to-income ratio (ex-LLE) settled higher at 57.9% (relative to 56.1% in HY-21).
Notwithstanding, profitability was stronger, with profit-before-tax settling 11.1% higher year-on-year, while profit-after-tax increased moderately by 5.0% y/y to NGN111.41 billion, given the higher income tax expense (+69.9% y/y to NGN18.59 billion).
The bank’s performance was impressive during the period and aligned with our expectations.
The strong growth in core and non-core income is very positive and should allow operating income growth to trail expense growth, which is expected to remain under pressure due to spiralling costs.
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