Zenith: Still a bank to beat

Executive summary

Zenith Bank Plc, founded by Jim Ovia, has been doing business in the Nigerian banking landscape for 21 years. The bank with a dual listing on both the Nigerian Exchange Group Plc and London Stock Exchange (LSE), has grown its total assets to N7.13 trillion as at first quarter in 2021. Today, the Bank continues to thrive on the strong values, brand equity, corporate culture of professionalism and service excellence which are the foundations upon which the bank was built. Zenith Bank Plc currently ranks as the 6th biggest bank on the continent. Headquartered in Lagos, Nigeria, Zenith Bank Plc has over 500 branches and business offices in prime commercial centres in all states of the federation and the Federal Capital Territory (FCT). Zenith Bank also has subsidiaries in: Ghana, Zenith Bank (Ghana) Limited; Sierra Leone, Zenith Bank (Sierra Leone) Limited; Gambia, Zenith Bank (Gambia) Limited. The bank also has representative office in The People’s Republic of China. The Bank plans to take the Zenith brand to other African countries as well as the European and Asian markets. It also has subsidiaries in: Ghana, Zenith Bank (Ghana) Limited; Sierra Leone, Zenith Bank (Sierra Leone) Limited; Gambia, Zenith Bank (Gambia) Limited. The bank also has representative office in The People’s Republic of China. The Bank plans to take the Zenith brand to other African countries as well as the European and Asian markets.


Mr. Jim Ovia, formerly Chief Executive Officer of the bank heads the 12 member board with Ebenezer Onyeagwu leading the management team.

Financial Review Q1’2021

Zenith Bank Plc, Nigeria’s leading financial institution, has announced its unaudited results for the first quarter ended 31st March 2020, with gross earnings rising by 6% to N166.8 billion, from N158.1 billion in March 2019. This is in spite of a very challenging domestic operating macroeconomic environment and global headwinds. According to the unaudited statement of account which was presented to the Nigerian Stock Exchange (NSE) on Wednesday 29th, April 2020, the Group’s top-line growth was driven by the 43% expansion in non-interest income from N32.7 billion in the prior-year period to N46.6 billion in March 2020. Non-interest income growth was driven by a 98% surge in trading income from N7.8 billion in March 2019 to N15.5bn in the quarter. Profit before tax also improved by 3% from N57.3 billion in Q1 2019 to N58.8 billion in Q1 2020. Increased profits benefited from the twin effects of continuing top-line growth and focused cost-of-funds optimisation. Cost of funds declined significantly from 3.0% in March 2019 to 2.6% in the quarter, translating to a 10% decrease in interest expense dropping from N36.3 billion in Q1 2019 to N32.8 billion in Q1 2020. Despite this drop, the current low yield environment necessitated the repricing of interest-bearing assets which in turn resulted in a 13% compression in net interest margin, decreasing from 8.9% in March 2019 to 7.7% in the current period. The Bank has continued to gain customer acceptance, with customer deposits increasing by 5% from N4.26 trillion in December 2019 to N4.46 trillion in the current period. The Bank’s customer deposit mix rebalancing remains on-track as the Group added N150 billion in savings account balances in Q1 2020, supported by its retail drive. The Bank’s customer acquisition strategy has been underpinned by the versatility of its electronic platforms and digital channels which continue to resonate with customers. The Bank’s total assets increased by 12%, growing from N6.35 trillion in December 2019 to close at N7.13 trillion in the current period. In the quarter, gross loans grew by 11% from N2.46 trillion in December 2019 to N2.74 trillion within the period. While seeking opportunities in select sectors, risk management and prudence took precedence as cost of risk moved marginally from 0.4% to 0.6%. Over the years, conservatism has put the Bank in a firm position from a balance sheet, capital adequacy and liquidity standpoint, allowing for prudential ratios to exceed the relevant regulatory thresholds as at end-March 2020.

Full Year 2020 Performance

Zenith Bank Plc, one of Nigeria’s top lenders, recorded a 5.2% year-on-year growth in gross earnings to N696.5billion at the end of its 2020 full financial year. The stellar performance in the midst of Covid- 19 has been attributed to the ability of the bank to make the best use of cheap deposits available to it as it expanded credit to customers in the review financial period. Also, the bank’s profit before tax and after tax rose 5.2% and 10.4% to N255.9billion and N230.6billion while loans and deposits expanded by 19.1% and 25.3% to N3.6trillion and N5.3trillion respectively. Analysis of the full year performance showed that the bank reported resilient gross earnings considering the overall pressure on the economy in 2020. The Covid-19 induced macro pressure was reflected in the modest Interest income and non-interest growth numbers which came in at 1.3% y/y and 8.5% y/y to N420.8billion and N251.7billion, respectively. Interest income was supported by advances to customers relative to a decline in income from investment assets amid a 19.1% expansion in gross loans and advances. Nonetheless, Zenith’s stellar performance is traceable to a significant reduction in interest expense in view of the low-interest-rate environment, resulting in a 90bps decline in cost of funds (CoF) to 2.1% from 3.0%. Thus, net interest income expanded 12.2% to N299.7billion while Net Interest Margin (NIM) settled at 7.9% (vs. 8.2% in 2019). Also, while fees & commission income tumbled to N79. 3billion (from N100.1bn) in 2020, non-interest income growth was supported by a surge in trading income (mainly on T-bills) to N121.8billion (from N117.8bn). Notably, electronic banking fees tumbled from N42.5billion to N27.1billion amid regulatory changes and a reduction in transaction volumes due to the lockdown. However, this was offset by a surge in foreign currency gains and trading income, which surged to N50.7billion from N14.2billion in 2019. “Expectedly, impairment charges printed a 64.5% increase to N39.5billion, driving Cost of Risk (COR) from 1.1% in 2019 to 1.5%. Operating exquarpenses (OPEX) came in 10.4% higher at N256.0billion, driven mainly by ICT charges (N20.4bn vs N9.8bn), AMCON, NDIC (due to deposit expansion), fuel & maintenance, license, registration, and subscription-related expenses. Thus, Cost to Income ratio (CIR) increased slightly to 50.0% (vs. 48.8% in the prior period). Accordingly, the profit ratios remained broadly stable as PBT came in at N255.9billion. Thanks to a reduction in the effective tax rate from 14.2% in 2019 to 9.9% in 2020, PAT jumped 10.4% to N230.6billion. Thus, net margin settled at 33.1% while ROE and ROA settled at 22.4% and 23.8%,” United Capital disclosed.

Total Assets

Zenith’s cash and balances with the CBN jumped 70.0% to N1.6trillion, of which over N1.3trillion or 83.6% represents mandatory and special reserve deposits with the CBN. This is unsurprising considering a move by the CBN to begin issuing special bills to banks in Q4-2020 as a strategy to manage liquidity as well the apex banks liabilities to deposit money banks going forward. Meanwhile, gross loans and deposits surged 19.2% and 25.3% to N2.9trillion and N5.3trillion respectively. However, Loan to deposit ratio (LDR) and liquidity ratio of 54.7% and 66.2% reflect a cautious approach to risk-asset creation in view of the fragility of the macroeconomic environment. Again, asset quality concerns appear to be well under control as Non performing loan (NPL) settled at 4.3% (vs. 5% guideline) with a coverage ratio of 112.1% even as capital adequacy ratio (CAR) improved to 23.0% from 22.0%, compared to the regulatory threshold of 15%/16%.


“We retain a BUY rating on Zenith at the current price of N26.3/share, buoyed by operational efficiency which was reflected in the reduction in cost of funds, massive cheap deposits, and resilient interest income numbers. In 2021, interest income from the huge deposits with the CBN should support earnings considering the special bills offering from the CBN which was executed at 0.5%. For context, we expect PAT to remain stable and well above N200bn in 2021, consolidating its industry position as the most profitable bank. Again, Zenith’s earnings stability continued to more than offset pressure on CAR, as observed in the 2020 numbers. Accordingly, our valuation assumptions feed on the lender’s robust balance sheet position, earnings stability, resilient margins, and dividend consistency. Adjusting our valuation assumption for higher country risk premium as well as risk-free rate, we revised our TP to N30.4/ share with a 15.0% upside potential compared to current price. The bank trades at a P/B ratio of 0.7x, less than 1.2x for Guaranty. Accordingly, we maintain a BUY rating on the ticker”, United Capital recommended.




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