ZENITHBANK released its H1-22 interim financial report (23 August), showing that the bank recorded strong earnings growth.
This 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).
Comment: 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. Overall, this should allow the bank recorded stronger profitability year-on-year. Our estimates are under review.
