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ZENITH Bank released its H1-21 interim financial report on Friday (27th August), which showed that the bank recorded earnings growth, albeit marginal. This performance was primarily driven by the growth in non-interest income and supported by moderate improvement in funded income, reflecting the new post-pandemic realities. Also, the bank recorded a significant decline in interest expense which contributed to its overall profitability. Thus, EPS grew by +2.4% y/y to NGN3.38 (vs. NGN3.30 in HY-20) while an interim dividend of NGN0.30/share (same as the corresponding period last year) was proposed for the period.
Interest income declined by 6.0% y/y to NGN203.93 billion, following declines in income from investment securities (-12.6% y/y to NGN62.84 billion) and loans and advances to banks (-66.0% y/y to NGN5.66 billion). These declines were expected given the lower yields on investment securities and the tighter liquidity pressures causing banks to reduce loans being advanced to other banks. Both of these contributory lines masked the growth in income from loans and advances to customers (+5.5% y/y to NGN135.43 billion) as risk asset creation edged up by 2.1% to NGN2.84 trillion in H1-21.
Likewise, interest expense declined significantly by 26.1% y/y to NGN43.99 billion, reflecting the lower cost on deposits from customers (-38.5% y/y to NGN26.16 billion) and despite the higher interest cost on borrowings (+4.9% y/y to NGN17.83 billion). Consequent to the larger decline in interest expense, net interest income settled marginally higher by 1.6% y/y at NGN159.94 billion. After accounting for credit impairment charges (-17.2% y/y to NGN19.80 billion), net interest income (ex-LLE) settled 5.0% higher year-on-year.
Maintaining the trend from last period, non-interest income (NII) settled 8.8% higher y/y at NGN126.77 billion. This was supported by the significant expansion in fees and commissions income (+42.3% y/y NGN47.66 billion) and gains from other operating income (+244.6% y/y to NGN7.34 billion). The impressive NII expansion, alongside the growth in net interest income, led to a 6.8% y/y increase in operating income to NGN266.91 billion.
Operating expenses, however, also grew at a faster pace (+10.3% to NGN149.85 billion), as all major contributory line items, save for personnel expenses (-3.3% y/y to NGN37.58 billion), recorded growth. Particularly the respective 22.5% and 16.8% y/y growth in AMCON levy and NDIC premium drove costs higher. Consequent to the higher opex growth relative to operating income, the bank’s cost-to-income ratio (ex-LLE) settled higher at 56.1% (HY-20: 54.3%).
Overall, profitability was stronger, with profit-before-tax 2.6% higher year-on-year. However, profit-after-tax expansion settled at 2.2% year-on-year growth (NGN106.12 billion), on account of a 6.2% y/y increase in income tax expense.
Analysts say the bank’s performance was in line with our expectations in the recovering economic environment. Nonetheless, they expect the bank to record stronger income growth as the year progresses on the back of improved risk creation, higher yields obtainable to reinvest maturing assets and strong balance sheet management.
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