L–r: Mr. Dennis Olisa, Executive Director, Zenith Bank Plc, Mrs. Adobi Nwapa, General Manager, Zenith Bank Plc; Mr. Oscar N. Onyema, OON, Chief Executive Officer, The Nigerian Stock Exchange (NSE); Mr. Ebenezer Onyeagwu, Group Managing Director/CEO, Zenith Bank Plc; Dr. Temitope Fasoranti, Executive Director, Zenith Bank Plc and Mrs. Nonye Ayeni, General Manager, Zenith Bank Plc during the Closing Gong Ceremony in commemoration of the appointment of the new GMD at the NSE. Photo: Business Hilights
Zenith Bank’s recently released audited FY-19 numbers, which were generally supported by strong non-interest income growth, also came with declined interest income within the period under review. However, due to the stronger expansion in non-interest income (NII), the bank recorded good growth in profitability. Also, the bank proposed a final dividend of NGN2.50/s, which translates to a dividend yield of 12.9%, based on the last closing price of NGN19.40 (20 February 2020).
Interest income declined by 5.6% y/y to NGN491.27 billion, depressed by weaker income from loans to customers (-14.7% y/y to NGN232.95 billion), although income from investment securities grew over the corresponding period of the prior year (+1.8% y/y to NGN155.72 billion).
However, that there was a growth in interest income from loans and advances q/q of 29.1%, reflecting the significant expansion in loans and advances (+26.5% y/y | +12.9% q/q) to NGN2.31 trillion, as the bank strived to meet the minimum LDR limit of 65.0%.
Also, interest expense grew by 2.8% y/y to NGN148.53 billion, reflecting the higher cost of deposits from customers (+12.0% to NGN80.58 billion). Similar to interest income, there was significant growth in interest expense q/q by 7.9%. Given this expansion, it is clear that the bank took on higher cost deposits.
Continuing the trend during the year, NII was strong, settling 29.0% higher y/y at NGN232.12 billion. The strong growth recorded was supported by expansions in fees and commissions income (+22.4% y/y to NGN100.11 billion) and gains on investment securities (+46.9% y/y to NGN117.80 billion). This expansion in NII, offset the decline in net interest income (9.7% y/y to NGN267.03 billion.), and led to an expansion in operating income of 3.9% y/y to NGN353.12 billion.
Besides, operating expenses growth was muted, as the bank continued to focus on cost management in the face of weak income growth. Opex grew marginally by 2.8% y/y to NGN231.83 billion, with the most pressure exerted by personnel expenses (+13.6% y/y to NGN77.86 billion), which constituted 33.6% of Opex. Consequent on the muted Opex growth relative to operating income growth, cost-to-income ratio (ex-LLE) settled lower at 48.8% relative to 49.3% in the prior year. Also, profitability was stronger, with profit-before-tax settling 5.0% higher year-on-year, while profit-after-tax settled 8.0%, on account of a 10.0% decline in income tax expense.
Business Hilights Intelligence Unit (BHIU) market assessment team notes that the improved growth in interest income quarter-on-quarter is in line with our prognosis, but avers that “Pressure on interest expense in 2020, due to the implementation of the higher CRR.”
