Zenith Bank Plc (ZENITHBANK) published its 9M-22 interim financial statements today (27 October), reporting an 8.6% y/y increase in EPS to NGN5.55 (9M-21: NGN5.11), aided by the impressive growth in the bank’s core (+26.5% y/y) and non-core (+10.0% y/y) income.
Impressively, the bank reported a +26.5% y/y increase in interest income to NGN390.76 billion, supported by the higher income from investment securities (+30.0% y/y to NGN122.97 billion) and loan and advances to customers (+26.3% y/y to NGN261.25 billion). The increase in income from investment securities was driven by the (1) elevated rates in the environment and (2) increase in investment securities (+16.5% YTD to NGN3.57 trillion). In addition, the increase in income from investment securities is due to the bank’s increased appetite for risky assets, given as the loan to customers expanded by 15.6% YTD to NGN3.88 trillion.
Interest expense grew by 45.5% y/y to NGN107.85 billion as all the contributory lines increased during the period due to the bank increasing its total liabilities by 22.8% YTD to NGN10.03 trillion. Parsing through the breakdown, interest costs on borrowings rose by 42.9% y/y to NGN44.61 billion, while deposits from customers advanced by 42.2% y/y to NGN60.99 billion. We note that the higher cost incurred on customers’ deposits is due to the deteriorating funding mix – (CASA 9M-22: 86.4% vs FY-21: 93.0%), translating to higher term deposit accounts. Eventually, the net interest income settled higher by 20.5% y/y at NGN282.91 billion. Given the 28.8% y/y increase in credit impairment charges, the net interest income (ex-LLE) settled higher at NGN245.81 billion.
Similarly, non-interest income (NII) rose by 10.0% y/y to NGN211.97 billion, underpinned by the growth in the income generated from fees and commission (+27.8% y/y to NGN100.06 billion) and gains on investment securities (+0.9% y/y to NGN91.44 billion). This expansion in NII, alongside the growth in net interest income, led to a 14.8% y/y increase in operating income to NGN457.78 billion.
Further down, the bank reported a 16.6% y/y increase in operating expenses to NGN255.23 billion, with the most pressure stemming from other operating expenses (+30.0% y/y to NGN112.99 billion), deposit insurance premium (+21.2% y/y to NGN14.67 billion) and AMCON levy (+16.1% y/y to NGN44.01 billion). Accordingly, the cost-to-income ratio (ex-LLE) settled at 55.8% (9M-21: 54.9%).
Overall, profit before tax advanced by 12.6% y/y to NGN202.55 billion, while profit after tax grew by 8.6% y/y to NGN174.33 billion), on account of a 46.8% y/y increase in income tax expense.
Comment: The bank’s performance was impressive, considering the weak macroeconomic environment. Nonetheless, we are concerned about the rising funding cost, which may inhibit the bank’s operating income in Q4-22. Overall, we believe ZENITHBANK has the ability to maintain its growth in core and non-core income for the rest of the year, given its dominance in the corporate and retail segments of the industry. Our estimates are under review.
