Zenith Bank Plc last week became the first lender to announce its audited financial results for the year ended December 2018. The bank showed significant resilience, ending the year with higher bottom-line and delighted shareholders with high dividend. According to the results, gross earnings stood at N630.344 billion compared with N745.189 billion in 2017.
It grew its net interest income and operating income by 15 per cent and eight per cent respectively as it was able to ensure improved cost efficiencies across the business. This focus on cost efficiencies is yielding tangible benefits as the group recorded its lowest ever cost-to-income ratio at 49.3 per cent from 52.8 per cent in 2017. Net interest income improved to N295.594 billion compared with N257.991 billion in 2017.
The bank’s risk-centric approach also ensured that cost of risk reduced significantly from 4.3 per cent in the prior year to 0.9 per cent in 2018. This was reflected through the major drop in impairment charges by 81 per cent, from N98.29 billion to N18.372 billion. In the same breadth, coverage ratio increased by 34.2 per cent from 143.4 per cent to 192.4 per cent over the same period, reflecting a prudent disposition to credit risk management. Cost of funds also moved in the positive direction, declining by 41 per cent from 5.2 per cent in 2017 to 3.1 per cent for the year, supported by a 33 per cent decrease in interest expense over the same period, demonstrating a robust treasury and liquidity management.
As a result, profit before tax (PBT) rose by 16.2 per cent from N199.319 billion to N231.685 billion, while profit after tax (PAT) grew by 11.3 per cent to N193.424 billion from N173.791 billion in 2017.
According to the bank, record PBT was achieved through the group’s optimisation of its cost of funds, cost-to-income ratio and cost of risk, ensuring that earnings per share strengthened by 11 per cent to N6.15.
Based on the improved performance, the directors have recommended a final dividend of N2.50 per share which in addition to the N0.30 per share paid as interim dividend amounts to N2.80 per share, compared to N2.70 in 2017.
Customer deposits grew by seven per cent led by an increase ofN109 billion in savings and an increase of N122 billion in current accounts providing it with a platform to rebalance its deposits mix.
Zenith Bank explained that in 2018, expensively purchased deposits were foregone in favour of cheaper and more stable deposits resulting in a reduction of expensive and shorter dated deposits by N110 billion. On the asset front, this increased by six to close the year at N6 trillion.
Also, the group’s efforts to deepen its roots in the retail segment have started yielding benefits. This has resulted in a remarkable increase in the volume of transactions across various electronic platforms as well as significant customer acquisitions. This growth in transactions on its digital channels continues to support its retail push as fees from e-products increased by 44 per cent over 2017 with retail deposit balances also growing by 25 per cent. The bank’s balance sheet remains shockproof as loan to deposit ratio, liquidity ratio and capital adequacy ratio were 44.2 per cent, 72 per cent and 25 per cent respectively and all above the regulatory threshold.
Management’s outlook is positive for 2019, supported by a fairly stable inflation rate, converging foreign exchange market and near target oil production. The Group will continue its investment in the retail segment of the market to consolidate its leadership position in both the retail and corporate segments while it maintains its shock proof balance sheet.
Consistent with this superlative performance and in recognition of its track record of excellent performance, the bank was recently ranked as the Most Valuable Banking Brand in Nigeria in 2018, by The Banker Magazine. Also, Zenith Bank was recognised as the Best Corporate Governance Bank in Nigeria by The World Finance for the sixth time just as Ethical Boardroom, a Europe based Boardroom watchdog reaffirmed this recognition by naming the bank as the Best Bank in Corporate Governance in 2018.
In addition, the bank was recently named as the Best Institution in Sustainability Reporting in Africa 2018 (SERAS Awards) and the Bank of the Year 2018 (BusinessDay).
Zenith Bank Plc became the first Nigerian bank to successfully integrate and launch Unstructured Supplementary Service Data (USSD) payments on Point of Sales (USSD on POS), enabling customers to pay for goods and services via POS terminals in merchant locations or on ecommerce websites without the use of cards.
The innovative payment solution, which is powered by CoralPay, allows Zenith Bank customers to use the *966# Eazy Banking (USSD) to pay for goods and services on POS terminals in merchant locations or on ecommerce websites through the generation of a payment code on the POS terminal which is then confirmed by the customer using their USSD pin.
Commenting on the launch of the new payment solution, the Group Managing Director and Chief Executive Officer of Zenith Bank Plc., Mr. Peter Amangbo, noted that the bank had always been at the vanguard of technological innovations geared towards creating value for its customers.
“This solution is an exciting and highly innovative initiative in promoting financial inclusion, facilitating payments by customers either remotely in the comfort of their homes/offices or at merchant locations without the use of a payment card. With this solution, customers in remote locations plagued with challenges of poor Internet access can now carry out transactions easily using their feature phones,” Amangbo said.
Assessing the results, analysts at WSTC Securities Limited, said gross earnings declined due to seven per cent and 30 per cent recorded across interest and non-interest income, respectively. They explained that interest fell as a result of lower interest accruing from loans and advances and treasury bills.
“ While we attribute the decline in interest income from loans and advances to management risk aversion to risk assets which saw loan books shrunk by 10 per cent, management blamed the decline to early repayment of short-term borrowings (bank overdraft facilities) as customers lean towards longer-term loans.
“Also, we noted a decline in interest from treasury bills despite the increase in value by seven on account of lower yields on government securities during the reporting period which has declined by 600bps relative to 2017 levels,” they said.
However, the analysts added that on the flip side, interest expense declined faster than interest income by 33 per cent from N216.6 billion to N144.5 billion in 2018 mainly driven by the sharp decline of 61 per cent recorded in interest on time deposits from N108.7 billion to N42.3 billion in 2018 as well as a surge of 28 per cent on customers savings deposits, reaffirming management strategic shift from expensive to cheaper deposit mix.
“As a result, net interest income rose by 15 per cent from N258 billion to N295.6 billion leaving the net interest margin flat at nine per cent. Cost of funds for the period eased by 210 basis points (bps) from five per cent in 2017 to three per cent in 2018,” they added.
WSTC Securities noted that Zenith Bank recorded a significant decline of 81 per cent on its impairment loss charged for the period due to the enhanced assets quality on the back of the impact of IFRS 9 implementation on its 2018 opening balances.
According to them, on the expense front, the aggregated operating expense for the group rose slightly by one per cent despite the 12 per cent increase in AMCON levy from N25.6 billion to N28.5 billion.
On the strength of lower interest expense and impairment loss charged for the
period, the cost-to-income ratio for the group declined from 53 per cent to 49 per cent. Consequently, PBT rose by 16 per cent from N199.3 billion to N231.7 billion, while PAT settled at N193.4 billion, an 11 per cent increase from N174 billion in 2017.
WSTC Securities said despite the challenging macro-environment, Zenith Bank remain resilient in maximising value for its stakeholders.
In their recommendation, they said: “We expect the cost optimisation strategy of the company to continue to support the company’s profitability even as it deepens root in the retailing segment of the business.
“Also, we expect the group to leverage the improving macro environment to drive loan growth, thus impacting on future performances. We have a revised forward EPS of N6.29 and a fair value estimate of N34.82.
“At the current market price of N25.30, the stock is trading at a discount of 37.63 per cent to our fair value estimate. Thus, we revised our recommendation on the stock to a buy.”
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