Jim Ovia Stake in Zenith Bank Inches Near N100 Bln
Jim Ovia, Zenith Bank Chairman

Jim Ovia Stake in Zenith Bank Inches Near N100 Bln

The most valuable lender by market valuation, Zenith bank Plc, delivered a solid earnings performance in 2021, according to its financial statement. While some operators switched off momentum, the bank maintained its solid profit cruise. Zenith bank balance sheet size has inched up near N10 trillion.

Valued at N845 billion in the Nigerian Exchange (NGX), data shows that Zenith Bank Chairman, Jim Ovia, owns 11.29% in the group’s 31.4 billion shares outstanding, with an additional interest of 1.525 billion indirect shareholdings.

Zenith Bank Chair indirect holding relates to directors’ interest in the institutional investors Ltd, Lurot Burca Ltd, Jovis Nigeria Ltd, Veritas Registrars Ltd, Quantum Zenith Securities Ltd, according to the audited report for the year.

Though, 2021 was a case of ride or die for some local banks due to large debit on cash reserve for failing to meet the 65% loan to deposit ratio target set by the Central Bank of Nigeria (CBN). Large numbers of deposit money banks pitched tents under the CBN standing lending facility to meet funding needs amidst Eurobond raise following a gradual implementation of Basel III accords.

Adjusting to the dictate of the regulator’s loan target, Zenith Bank increased loan appetite to protect earnings as the lender further deepen its footprint in the retail segment for the third year. The bank’s profitability was helped by a better earnings profile, but it was dotted by key line items which include impairment on credit losses and rising operating expenses.

In addition, earnings from investment securities declined but the bank still rose above the tide as the cost of funds declined, according to the financial statement.

Following a 200 basis drop, analysts however expressed worry of declining capital adequacy ratio which printed at 21%, though far ahead of the 16% regulatory requirement for an international banking licence.

In profitability, Zenith Bank Plc beats its own internal guidance as profit before tax settled 410 basis points ahead of the 5.50% growth target for the year.  Consequently, its earnings per share edged higher by 6% to N7.78 in the year, up from N7.34 in the comparable period in 2020.

Zenith proposed a final dividend of N2.8 per share, subject to appropriate withholding tax and approval by shareholders. The final dividend will become payable on Wednesday, 6 April 2022, to all shareholders registered in the company’s books at the close of business on Friday, 25 March 2022.

Amidst a heavy industry rivalry and increased regulation with a margin-dilutive undertone, Zenith group bolstered its top line by 9.9% in the financial year 2021, detail from its regulatory filing shows. 

The growth in revenue accrued to the bank was helped by increased income from interest yielding assets as lenders increased lending appetite.  Where is the pressure building up for the largest bank by market valuation, and of course healthier Tier-1 capital position in the industry?

“If Zenith Bank’s number exhumes pressures, the whole industry might be sick, somehow”, analysts said at MarketForces Africa forum during the week.

Zenith bank has been building a footprint in the retail segment of the market, a strategy to widened its earnings net and reduce possible pressures from large tickets transactions on performance. Last year, the bank identified small businesses, agriculture, healthcare and manufacturing as some of the growth sectors for the financial year 2021.

For some equity analysts, the bank is competing with not more than a Nigerian bank in the industry for profitability. The theme of the fresh financial performance indicates that the bank is losing to low-interest rate environment, as investment income is failing to provide a backup for better earnings.

However, the management adjusted strongly to this, raising credit assets amidst the 65% loan to deposit ratio requirement – thus safe its cash reserves from being sterilised. Last year, the management announced that they expect the bank to deliver N270 billion pretax profit for 2021 compared with N255.9 billion in the comparable period year.

In its regulatory filing, Zenith’s gross earnings inched higher by 9.9% year on year, and the net profit jumped 6.1% to N244.6 billion in the financial year 2021. The gross earnings rose 9.9% to N765.6 billion, powered by a 37.6% year on year growth in trading income, and supported by a 31.0% jump in the net fee and commission income.

The fee income was partially offset by a 25.9% fall in other income. In the period, the bank’s net interest income grew due to a solid management of the treasury portfolio. According to the bank financials, interest payments to providers of funds declined 11.8% from N121.1 billion in 2020 to N106.8 billion in the current year.

This was helped by better current accounts, savings account proportion – a chance at being the banking industry’s cost leader. Detail shows that zenith bank interest and similar income jumped up, albeit moderately by 1.6% year on year to N427.6 billion.

The growth in the net position relating to the bank’s interest and similar income line was helped by an 11.8% year on year drop in Interest and similar expense. The rise in interest income was primarily driven by a 16.5% growth in interest income from loans and advances, according to the regulatory filing submitted to the Nigerian Exchange.

The surge came due to a 20% increase in gross loans, thus offsetting pressures on earnings resulting from a 74.4% drop in income from placement with banks and discount houses to N6.8 billion. While providing earnings guidance for 2021, the management had hinted at a 10% loan target for the year, though in 2020 loan book surged at about 20% also. 

Also, the bank saw 82.6% decline in income from promissory notes amidst a low-interest rate environment and pressures from the industry’s rivals. The earnings from treasury bills were also down 24.9% to N40.4 billion.

The group’s enhanced efficiency helped reduce interest expense by 11.8% year on year to N106.8 billion, according to an equity note by FSDH Capital. READ: Treasury Yield Inches Higher Amidst Inflation Worries

According to analysts, operating a loose monetary policy environment is margin dilutive for the bank with the highest tier-1 based capital. The result shows that the net interest income rose 7.0% YoY to N320.8 billion from N299.7 billion in 2020.

Asset quality of the bank was dragged by an increase in stage 2/3 loans which required the bank to raise its provision steeply – possibly due to the end of moratorium handed by the CBN to the operator for pandemic coverage.

Zenith bank impairment charged booked in 2021 was 51.6% above 2020 record, thus reducing the strength of Tier-1 lender’s bottom line. Outside lending activities, Zenith Bank reported a 22.8% year on year jump in non-interest income to N309.0 billion, driven by transactions volume growth.

A breakdown of its operating expenses profile indicates that the Bank’s personnel expenses rose moderately by 0.5% to N79.9 billion at the time when its overall operating expenses for the year expanded by 22.1% ahead of Nigeria’s inflation rate for 2021.

Profit before tax inched higher by 9.6% to N280.4 billion. The company reported an after-tax profit of N244.6 billion compared to N230.6 billion in the prior year.

Zenith Bank Plc. remains focused on its drive to increase retail deposits for the past three years, combined with the strategic rebalancing of its funding base helped reduce the cost of funds by 28% to 1.5% from 2.1% year on year.

It continues to progress in its retail banking drive, evidenced by remarkable growth in transaction volumes and value across digital platforms and strong growth in customer acquisitions.

In 12-month, it grew total deposits by 21% to close at N6.5 trillion from N5.3 trillion in the comparable year. A breakdown shows there was a substantial contribution from retail deposits. 

The group ended the financial year 2021 with 11% growth in total assets to N9.5 trillion in the current period, mainly driven by growth in customer deposits and a rising appetite for loans and advances. #Jim Ovia Stake in Zenith Bank Inches Near N100 Bln