Finance experts give Zenith Bank passmark


By July 5, 2010 12:40AM


Finance experts said that Zenith Bank, the first bank to publish its 31 December, 2009 common year end results, is showing positive signs in its bid to address the challenges posed by the domestic market turmoil that began last year.



Standard & Poor’s Ratings Services, an international rating agency, said last week that that it has revised its outlook on Nigeria-based Zenith Bank Plc to stable from negative. “The outlook revision reflects our view that Zenith’s financial profile is proving resilient to the tougher operating conditions in the Federal Republic of Nigeria (B+/Stable/B). This has helped the bank stabilise it creditworthiness.” They said the bank’s exposure to credit risk remains significant, given the bank’s operating environment, but asset quality deterioration is likely to remain manageable.



The ratings agency said factors which support the ratings include Zenith’s market position in high-end corporate banking in Nigeria, solid funding and liquidity profile, and satisfactory capitalization and reserves, which support the bank’s loss-absorption capacity.The ratings on Zenith Bank, however, continue to be constrained by the high economic and industry risks associated with operating in Nigeria, the bank’s restricted geographic and business diversification, high exposure to credit risk, and deteriorated asset quality indicators.



Challenges linger


The ratings agency also added that ratings on Zenith reflect the bank’s stand-alone credit profile, and do not incorporate any uplift for potential extraordinary support from the Nigerian government.“In our view, the bank’s financial profile is proving comparatively resilient to the domestic market turmoil that began last year,” said Standard & Poor’s credit analyst, Austen Koles-Boudreaux, adding that exposure to credit risk remains significant, given the bank’s high risk and narrow operating environment, and asset quality deterioration is likely to remain manageable.



“Positive rating action is unlikely for the foreseeable future, and would depend on the sovereign rating and improvement in Zenith’s operating environment, as well as on the bank’s own ability to strengthen its financial profile, particularly regarding asset quality,” the agency said.Afrinvest, a finance firm, while acknowledging the efforts of the bank, however, said further reduction in deposit may negatively impact on the bank’s asset growth and profitability.



“We remain concerned with Zenith Bank’s ability to generate longer-tenured deposit to finance risk assets origination. We are of the opinion that a further reduction in deposits and managements preference for Tier 1 capital could place a constraint on asset growth and overall profitability. On the whole, we remain positive on the banks asset mix and quality. Management feedback also suggests that efforts are being made to expand the risk asset book, while seeking to extend the tenor on deposits, thereby improving margins and ultimately, profitability,” the finance firm said in a report.



Zenith Bank recorded a Profit before Tax (PBT) of N35billion, and a Profit after Tax (PAT) of N21 billion for the 15 months to December 2009, though finance experts noted that provisions in the bank’s books were higher in past quarter, which they said, was rather disappointing.Finance experts are of the view that Nigerian banks’ franchises are being strongly tested, as many banks face the challenge of rebuilding their balance sheets, particularly those that failed the Central Bank audit.



Nigerian banks which passed the Central Bank audit are expected, on the other hand, to have capital ratios above the minimum regulatory capital adequacy threshold of 10 percent, although capital could still be overstated, given reduced levels of loan loss reserves at certain institutions.



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