Zenith Bank Plc (ZENITHBANK) released its 2023FY results this evening, which showed that the bank maintained its strong performance throughout the year to record a stellar financial performance.
The bank recorded a 125.4% y/y growth in gross earnings, while profit-after-tax settled 202.3% higher y/y. The performance was supported by balanced growth across income lines as funded and non-funded income surged by 111.9% y/y and 141.2% y/y, respectively. In addition, the board proposed a final dividend of NGN3.50/s (2022FY: NGN2.90/s), which equates to a dividend yield of 7.6% (ex-WHT) based on the last closing price of NGN41.55/s (8 April).
Interest income grew to NGN1.14 trillion in 2023FY, driven by a combination of significant growth in earning assets (+50.8% y/y) – primarily supported by loans and advances to customers expansion by 63.4%y/y to NGN6.56 trillion – and improved yield-on-assets (7.6% vs 2022FY: 5.4%). Consequently, the bank recorded significant growth in income from loans and advances to customers (+81.4% y/y to NGN671.92 billion), while the increase in income from investment securities (+148.3%y/y to NGN390.93 billion) was also supportive of funded income generation.
Following the rising cost of borrowing, the bank recorded a significant increase in interest expense by 135.4% y/y to NGN408.49 billion. We highlight notable increases in expense across all lines, with the expense on deposits from customers (+150.0% y/y to NGN306.75 billion) impacting most significantly. Also, expense on interest-bearing borrowings (+103.4% y/y to NGN99.17 billion) and financial liabilities held for trading (+23.8% y/y to NGN2.58 billion) contributed to the deterioration of cost of funding to 2.4% (2022FY: 1.7%).
Consequently, net interest income (ex-LLE) settled only 34.2% higher, amid significantly higher credit impairment charges (+232.3% y/y to NGN409.62 billion) taken for 2023FY, reflecting views about risk in the macroenvironment – cost of risk settled at 6.3% relative to 3.1% in the prior year.
Similar to interest income, non-interest income advanced significantly by 141.2% y/y to NGN918.87 billion, as the sturdy net gains from investment securities trading (+166.6% y/y to NGN566.97 billion) and net FX revaluation gains (+804.9% y/y to NGN228.98 billion) were enough to offset decline in income generated from fees and commissions (-17.7% y/y to NGN109.31 billion). We also note that the bank recorded lower income from FX revaluation (-39.4% q/q) on a quarter-on-quarter basis in Q4-23.
Due to the accelerating inflation and higher regulatory charges, operating expenses increased by 32.3% y/y to NGN449.5 billion in 2023FY. For clarity, the group incurred higher personnel expenses (+44.0% y/y to NGN124.42 billion), deposit insurance premium (+44.9% y/y to NGN31.52 billion), AMCON levy (+30.4% y/y to NGN57.38 billion), while other expenses expanded by 25.9% y/y to NGN236.16 billion. Notably, the bank’s cost-to-income ratio (after accounting for LLEs) improved to 36.1% (2022FY: 54.4%), driven by the faster growth in operating income (+99.5% y/y) relative to expenses (+32.3% y/y).
Accordingly, profitability spiked as the group’s profit before tax increased by 202.3% y/y to NGN795.96 billion. Likewise, PAT settled 202.3% y/y higher at NGN676.91 billion after accounting for a rise in income tax expense (+96.0% y/y).
Analysts at Cordros Capital aver that “While we are impressed by ZENITHBANK’s 2023FY performance as the bank consolidated on a solid performance through 2023FY, we are somewhat concerned by the significant expansion of the cost of risk. While it may be reflective of management taking the prudent approach to account for future risk under the ECL framework, it may point to asset quality issues. We will engage management further during the upcoming conference call.”
