Zenith bullish on retail wallets; says won’t do acquisition for cosmetic reason
In an effort to develop strong footprint in the retail banking, Ebenezer Onyeagwu, the Group Managing Director and Chief Executive Officer Zenith International Bank Plc said the bank will intensify drive in terms of deposits and loan position.
Onyeagwu who spoke along with Dennis Olisa, Executive Director, Felix Egbon, Chief Risk Officer, Deputy GM & Group Head of Risk Management Group, Mukhtar Adam, Chief Finance Officer and Temitope Fasoranti, Executive Director at Zenith bank Plc said, “That we are looking at retail doesn’t mean we are releasing our grip in the corporate.
He said, “Our expectation is that we’ll continue to grow in terms of loan book. Opportunities abound in the credit sector, the retail and SME, in this space. Zenith reflects an aspirational bank”.
Speaking about potential acquisition of retail lender to soften ground for its retail drive, the CEO said Zenith would not do acquisition for cosmetic reason but would negotiate deal if strategic imperative is right.
He added that the introduction of the Biometric Verification Number has provided reasonable level of comfort in terms of the loan growth to the retail segment. The bank chief said that the bank will continue to grow organically.
“But if we find anything attractive in the market that is in line with our strategic imperative, we will look at it. If we find something that requires a strategy and really fits the kind of profile of the investment we do, we will consider”, he added.
In its performance review, the management said that in terms of retail loans as a proportion to the loan book, as of end of December 2018, we recorded 1.5%. But as of end of June this year, we have seen that grew up to 2.4%.
The expectation is that the figure will continue to grow higher as we intensify our retail drive in terms of deposit and loan position, Onyeagwu added.
There are quite a lot of opportunities for us to expand the retail loan book given the initiative and incentive from Central Bank of Nigeria especially. He mentioned intervention loans for the creative sector and also the SME loan incentives that are in place.
Speaking further on non-interest income performance, the uptick in e-banking contribution, Onyeagwu said in terms of increased e-banking income, what you see is a reflection of the steady progress and intensity we have in the retail banking initiative. And are we going to slow down? The answer is no.
Instead, what we are saying is we’ll continue to steadily build momentum. The Zenith Bank in the retail suite has been very well received. It was due to quite a number of customers, he added.
“So given what we have and the strong capability we have in digital platform, we expect that we should be able to strengthen this growth trajectory that we have in the electronic banking space”, he echoed.
Onyeagwu said, “For the loan-to-deposit ratio, for the bank as a stand-alone as of end of June, we have 52.7 percent. But as a group, we have 51 percent”.
“Right now, retail deposit as a percentage of our total deposits is 29.3%. That’s against 23% in December. So hopefully, we expect that it will continue to grow. And then if you’re asking for where we expect it to be, I think for me, we’ll be looking at nothing less than 40%”, he added.
The bank chief said opportunity in retail banking is a huge, and then there’s enough to accommodate. But not just accommodate, but leading position in that space.
The whole objective is the same where we have taken a leading position in the corporate segment. We want to definitely say that in the retail. That’s the minimum for us, he added.
Onyeagwu said, “We think the opportunity that this will also do is a lot more because if you go by the CBN report, the total number of bankable adults in the country is 110 million. And the total number of adults that have bank account currently stands at 38 million, which means we still have huge potentials in the market.
“And one of the reasons we also believe that we should be able to grow that business is because of the strong capability we have fused into the retail banking process.
“In terms of the electronic platform, our platform is efficient. The rate at which we embolden customers is also growing astronomically. So our expectation is that we will continue to see that line grow steadily”, the management held.
Speaking on the increased impairment charges and cost of risk, Mukhtar Adam, the Chief Finance Officer of the bank said we’ve given guidance of 1% for cost of risk. Now we are 1.4%.
“We are maintaining our guidance because we believe that the provision, the impairment charges we have taken, is more than adequate to carry out to the rest of the year.
“And then as our loan book grows-because we are tweaking the guidance for the growth in loan book – it will moderate the cost of risk, which will end at around 1% than we have guided. We’re optimistic that at the close the year, we’ll be able to achieve that 1% cost of risk as we guided”, he added.
Adam said for interest income that dropped in second quarter of 2019; remember that last year, some of the instruments that we moved into the current year have higher yields. So, first quarter 2019 inherited some instruments from last year that have higher yield that came into the first quarter.
He said, “Once those ones mature and the bank roll over, roll them over at lower yield. So the yield in second quarter stand-alone was very, very low. That’s why you are seeing a drop in that interest income. But again, you also have to look at how we are also managing our interest expense within that in the second quarter of 2019”.
“We are watching both interest expense and interest income. So we don’t use too much on the margin. We believe that we are going to have a better yield in the third quarter and fourth quarter as the yield environment is improving now”, Adam, the CFO added.
On assets quality, we are allowed to write off the loan book. However, that doesn’t preclude a follow-up in terms of recovery, Onyeagwu added.
In the same voice, Onyeagwu said, “We don’t expect that we are going to be having quite a huge write-off. We don’t expect our non-performing loan (NPL) to deteriorate because we are keeping a close eye in terms of the asset quality. What we are trying to see is that the NPL level will continue to trend downwards.
In January, average yield was 17.6%. But as of end of June, we have trended downward to 13%. Within first quarter, the average yield was trending downward, the management stated.
So what you’ve seen in the return is a steady decline in the yield environment. So that is primarily what affected the results in terms of what we have in T-bills. We’re trying to ensure that we balance the margin that we realize from our treasury activity, Onyeagwu added.
Again on increased NPL, Adam said that in the telecom sector Zenith has one major name that has been put in NPL.
That happened in the second quarter of 2019. That’s what caused the spike. But that has been fully provided for. It’s just moving it to NPL. He also added that Power sector is still challenged, but the bank is working with a good number of them.
There is appreciable improvement in terms of loan growth when compared to the first quarter of the year. What we did was to ensure that will build the loan book in order to ensure that we achieve the 60% minimum requirement by CBN”, the management said.
According to the management, in an environment where you see the yield declining, also bear in mind that within this period; we’ve also witnessed a situation where opportunities for investment in government instruments were limited because of the direction of the Central Bank.
Onyeagwu said, “Opportunities were not there like we had in the first quarter. What that meant was that we had execution where we have to think of other ways of deploying our results. So that impacts us a lot”.
Reacting to analysts probe on whether Zenith bank is going back to bond market, Adam said we have $1 billion bond project, but we took almost all the $1 billion. We’ve repaid $500 million. We have only $500 million running.
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“When we have opportunities to go back, we’ll definitely go back with the opportunities coming in the option oil and gas, and then credit rating is good enough to give us a very good pricing. Our domiciliary deposits also are not doing too badly.
“Our dollar liquidity is also doing well for now to meet our need. But if there’s any need for us to go back, the program is already there. We’ll take advantage of that. But for now, we are not on the market”, Mukhtar Adam stated
Onyeagwu said the bank has increased foreign currency deposits. The deposit is coming from improvements in the flows we are getting from most of our customers who flew here in dollars. So I will say that it’s slightly corporate led deposits and the retail portion of it is very insignificant
In terms of the yield on loans, you realize that as the yield on treasuries from abroad is going down, it has a direct correlation with interest rate, which equally almost in a linear form or has a linear relationship with the lending rate. We’ve also seen the key corporates asking for a reduction in the rate.
In terms of the growth we’ve seen in our loan, a significant portion of it has also come from differentiated cash reserve requirement, DCRR, priced, I mean, which contain up 9%. So that also has an impact in terms of the yield you see on our loan book.
“Because of competitive pressure, lending rate has come down. We noticed that lending rates coming down in the second quarter because we needed to defend our position, we have to move in the direction of the market. We simply have to clear the market”.
Onyeagwu said the bank understand challenges in the oil and gas, it is not an endemic sector. Where there are deals available and when we find good deals, will we do.
“The whole concept is that we must ensure that for as long as we’re going to the sector because of the volatility of the commodity price that nobody can predict, we mentioned that we’ll get the necessary comfort and hedges in place to insulate us from any eventual rifts associated with sharp commodity declines. That is clearly the way to go.
Adam said the reason why Zenith’s coverage is higher than peers it is a reflection of level of prudency in terms of making provision when you see loan is challenged. Our coverage ratio is around 145%.
“Once we have a coverage ratio above 100%, what it means is that for potential bad loans in the system; we have provisioned to cover everything. We are very comfortable with that”, Adam added.
Zenith bullish on retail wallets; says won’t do acquisition for cosmetic reason