In the face of macroeconomic volatility…

The management recognized the challenges present in the Nigerian economy following the oil price crash in June 2014 and the effects on the Banking subsector at large. Other issues that weighed heavily on the industry were the Naira devaluation and increase in Cash Reserve Requirement (CRR) in Q4-2014. The management recognized the bank’s triumph amidst such uncertain times.

Foreign Exchange & Naira Devaluation – Despite the bank’s 29% loan book in forex, the management opined that such exposure was minimal. It explained that forex transactions were mainly short term loans (e.g. LC) for top general commerce customers who borrow in dollars, and further maintained that c.10% of the loan growth was fuelled by the naira devaluation and 27% in actual loan growth. Curbing investors’ concerns, the management asserted that the naira devaluation spurred bank’s growth, evident mainly in increased non-interest income by way of increased credit related fees and commissions on turnover.

Falling oil prices – Zenith Bank recorded an increase in upstream oil sector exposure from 4.82% in 2013 to 8.43% in 2014 on the back of foreign exchange devaluation. Notwithstanding, the management maintains that it has a marginal exposure to oil price differences.

Monetary Tightening – The 36.6% q/q and 26.2% y/y growth in interest income in Q4-2014 was largely on the back of the MPR increase in November last year which resulted to a re-pricing of risk assets.

Effective Tax rate: The increase to 17% in 2014FY from 11.4% in the preceding year was as a result of a reduced investment (and consequently income) in treasury bills following an increase in public deposit CRR.

KEY PERFORMANCE HIGHLIGHTS AND FORECASTS

Source: Company Management/Cordros Research