Zenith Bank Plc.'s Profit Rises in Pandemic Year
Ebenezer Onyeagwu, Zenith Bank Plc Chief Executive

Zenith Bank Plc.’s Profit Rises in Pandemic Year

Zenith International Bank Plc. bolstered profit performance to ₦230.565 billion in the year of pandemic from ₦208.843 billion in the financial year 2019.

Despite rise in impairment on financial and non-financial assets, lender put up a strong profitability show, though tax expense advantage support the bottom line.

By income sources, Zenith bank result showed that interest earnings assets yielded a 1.3% year on year growth.

Just as in the last quarter in 2020, the bank recorded 0.1% growth in interest income compared with Q3 of the same year.

Though net loans and advances to customers were up 20.5%, interest income on such loans only grew 7.7% year on year, suggestive of lower loan yields. 

Analysts at CSL Stockbrokers Limited said yields on investment securities were also significantly pressured. 

But then, low interest rate environment bears positively on financing sources.

It was noted that interest expense declined 18.4% in 2020 and 19.4% in the Q4 compared with Q3, bringing cost of funds down to 2.1% compared with 3.0% for 2019.

Overall, lender’s net interest margins (NIMs) declined to 7.9% in December 2020 compared with 8.2% in December 2019.

Unfortunately, the bank non-interest income line was affected as net fee and commission income went down 20.8% year on year.

Analysts said was mainly on the back of a 36.4% decline in credit related fees and a 36.3% decline in fees on electronic products, a line item that has previously been the main driver of growth in fees and Commission.

This was attributed to regulatory cut to fees on electronic products implemented by the Central Bank of Nigeria, effective January 2020.

CSL Stockbrokers however said a 154% growth in commissions on agency and collection services helped taper the effect of the cut on fee growth.

In the fourth quarter, net fee and commission declined 21.1% despite December festivities which previously boosted fee and commission income.

Other income -trading income and other operating income – grew 30.6% year on year and 85% quarter on quarter in Q4 compared with Q3.

It was noted that the year on year growth was mainly on the back of a 276.4% growth in revaluation gains to ₦43.4 billion for 2020 compared with only ₦11.5 billion for 2019.

Analysts said Zenith bank booked extra ₦22.9 billion in foreign currency revaluation gains in Q4 2020, which contributed to the 85% quarter on quarter growth in other income compared with Q3.

On asset quality, lender’s impairment charge jerked up 64.5% year on year to ₦39.5 billion 2020.

“We believe this was driven both by the significant growth in loans and expected deterioration under the macro conditions in 2020”, CSL Stockbrokers said.

Cost of Risk (COR) came in at 1.5% compared with 1.1% for 2019.

Analysts explained that impairment charge booked was very minimal in Q3-2020, down 94.1% to ₦1.2 billion in Q3 when compared to Q2.

This resulted in a significant growth in impairment charge in Q4 totalled ₦14.4 billion when compared with Q3.

CSL Stockbrokers said with NPL ratio of 4.3% and coverage ratio of 112.1%, it does not see any near-term risk to the bank’s asset quality ratios.

“Though we expect a slight deterioration in asset quality for the banking sector in 2021, we do not expect this to significantly impact the books”, the firm added.

Zenith bank however saw it operating expenses skyrocketed by 10.4% in 2020 but there was actually a 1.1% drop in Q4 as against Q3 figure.

The year on year growth coupled with a similar growth in total operating income led to the cost to income ratio (ex-provisions) staying flat at 46.4%.

“We like the moderate operating expense growth despite the effect of devaluation and increasing inflation”, analysts at CSL Stockbrokers stated.

Meanwhile, amidst growing adoption of online and e-banking services, Zenith bank saw significant growth in information technology expenses.

Largely, lender’s profit before tax grew at 5.2% year on year to ₦255.9 billion while net profit grew 10.48% due to a lower tax charge.

Specifically, profit after tax came in at ₦230.6 billion; bringing 2020 return on average equity (ROAE) to 22.4% compared with 23.8% in 2019.

Zenith bank Board of Directors proposed a final dividend of ₦2.70k, bringing total dividend to ₦3.00/s for 2020 compared with ₦2.80/s in 2019.

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Analysts said the bank still rates well based on capital adequacy of 23.0%, up from 22.0% in December 2019, sustainable long-term dividend yield, and stable asset quality.

Zenith Bank Plc.’s Profit Rises in Pandemic Year