Zenith Bank reports 8.2% y/y decline in EPS to NGN7.14

Zenith Bank Plc (ZENITHBANK) released its 2022FY audited numbers after the close of business Tuesday, in which the group reported an 8.2% y/y decline in EPS to NGN7.14 (2021FY: NGN7.78). The moderation in 2022FY earnings was triggered by higher impairment charges (+105.7% y/y) induced by the debt restructuring programme in Ghana – the group took an impairment allowance of c.NGN58.80 billion on c.NGN202.40 billion worth of instruments issued by the Government of Ghana. ZENITHBANK’s board proposed a final dividend of NGN2.90/s (2021FY: NGN2.80/s), which equates to a dividend yield of 11.6% based on the last closing price of NGN25.00/s (28 March).
The group’s interest income grew by 26.3% y/y to NGN540.17 billion, occasioned by the expansion in risky assets (+19.6% YTD to NGN4.23 trillion) and an effective repricing of its interest-earning assets during the period. Consequently, the group generated higher income from loans and advances to customers (+26.8% y/y), loans and advances to banks (+81.3% y/y), and investment securities (22.4% y/y) in 2022FY.
Likewise, interest expense inched higher by 62.5% y/y to NGN173.54 billion, reflecting higher costs on deposits from customers (+103.4% y/y to NGN122.71 billion) and borrowings (+13.2% y/y to NGN48.75 billion). We attribute the higher costs on customers’ deposits to the steep growth in deposits (+38.7% y/y to NGN8.98 trillion) coupled with the moderation in the group’s low-cost deposits (CASA 2022FY: 84.6% vs 2021FY: 93.0%) during the period.
Following the impressive interest income growth, net interest income expanded by 14.3% y/y to NGN366.63 billion. However, after accounting for credit impairment charges (+105.7% y/y to NGN123.25 billion), net interest income (ex-LLE) settled 6.7% lower year-on-year. According to the press release which accompanied the financial result, management cited that the significant growth in impairment charges was due to the higher impairment expense for its Ghana subsidiary following the debt restructuring programme in Ghana. Notably, impairment charges for its Ghana subsidiary grew to NGN56.18 billion in 2022FY from NGN1.95 billion in 2021FY.
Non-interest income (NII) grew by 23.3% y/y to NGN380.97 billion in the period. The growth recorded was supported by expansions in net fees & commissions income (+27.7% y/y to NGN132.80 billion) and gains on investment securities (+27.0% y/y to NGN212.68 billion).
Further in, operating expenses expanded by 17.3% y/y to NGN336.69 billion, reflecting the inflationary environment and the balance sheet expansion (the group’s assets grew by 30.0% to NGN12.29 trillion) leading to the higher non-discretionary regulatory expenses. For context, higher expenses were incurred on NDIC insurance premium (+25.9% y/y to NGN21.75 billion), AMCON levy (+16.1% y/y to NGN44.01 billion), personnel expenses (+8.2% y/y to NGN86.41 billion), and other operating expenses (+25.4% y/y) following a surge in IT and maintenance costs. Following the OPEX growth relative to operating income growth, the bank’s cost-to-income ratio (ex-LLE) settled higher at 54.4% (2021FY: 50.8%).
Overall, profit-before-tax settled marginally higher by 1.5% y/y to NGN284.65 billion (2021FY: NGN280.37 billion). However, the 69.6% increase in income tax expenses put further pressure on profit after tax (-8.4% y/y to NGN223.91 billion). We attribute the higher income tax expenses to the effective implementation of the Finance Act in 2022FY.

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