MON, FEBRUARY 25 2019-theG&BJournal- Zenith Bank Nigeria Plc, Nigeria’s second biggest lender, has delivered impressive returns to investors as profit continues grow steadily in the last five years.
Analysis of 2018 audited financial statement showed costs were curtailed while Non-performing Loans (NPLs) remained below the regulatory threshold.
For the year ended December 2018, Zenith Bank’s net income increased by 16 percent to N193.42 billion, a figure that nearly double the N99.45 billion recorded in 2014. Net income for N173.81 billion was recorded in 2017.
The uptick in year on year (YOY) profit can be attributed to the Group’s optimization of cost of funds, cost to income ratio, and cost of risks, but top lines (revenue) were beaten down on the back of a low yield environment.
Interest and similar charges were down 7 percent to N440.05 billion in December 2018, as against N440.05 billion the previous year.
A drop in noninterest revenue such as fees and commission income and trading gains resulted in a 15.41 percent reduction in gross earnings to N630.34 billion in the period under review, from N745.18 billion the previous year. This is the first time since 2012 that revenue growth has slowed.
Zenith Bank has utilized owner’s assets in generating higher profit as return on average equity (ROAE) increased by 2.38 percent to N23.80 in December 2o18 from 22.90 percent as at December 2017.
Net interest Margins (NIM) remained flat at 8.9 percent, demonstrating the Group’s ability in delivering optimal pricing for its interest bearing assets and liabilities even in a declining yield environment.
“Despite the decline in gross earnings, the Group mitigated these knock-on effects through growth of its net interest income and operating income by 15% and 8% respectively as it was able to ensure improved cost efficiencies across the business,” said the Bank.
Zenith Bank is cutting cost while contemporaneously bolstering profit as cost to income ratio improved to 49.30 in the period under review from 52.80 percent the previous year.
Total operating expenses increased by a mere 1 percent to N255.50 billion, the expense figure are lower than the 11.37 percent January inflation figure.
The Nigerian lender’s risk-centric approach ensured that cost of risk reduced significantly by 79 percent to 0.90 percent in December 2018 from 4.3 percent the previous year while impairment charge on financial assets dropped by 81 percent to N80.10 billion, underscoring the Group’s enhanced assert quality.
Zenith Bank’s loans and advances were down 10 percent to N2.016 trillion, but the lender is increasing focus on consumer lending as lower oil prices weigh on the economy.
The bank is expecting to expand retail loans as a percentage of total credit to about 4 percent this year from less than 1 percent in 2018, Chief Executive Officer Peter Amangbo told Bloomberg recently in an interview. It will achieve this by making a bigger push into personal loans, cars and mortgages, he said.
“There is a lot we are doing on revenue, Amangbo said. We expect our retail franchise to grow. Our electronic business, our digital banking is growing,”
Banks in Africa’s largest economy have refused to lend to the economy as they take advantage of high yield on government short term government securities to add impetus to earnings.
For instance Zenith Bank’s interest income on loans and advances fell by 13 percent to N273.18 while it made N100.53 billion as at December 2018.
The directors of the bank have proposed 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.
Zenith Bank shares closed at N26 2:00pm Monday, while capitalization stood at N819.44 billion. It has a price to earnings ratio of 4.46 times.