August 11, 2017/InvestmentOne Research
NIGERIA | EQUITIES | BANKING | ZENITH BANK PLC
Q2 2017 results highlight: Surge in loan impairment charges weighs on gains from FX trading
· Net interest income of N68.36bn, down -3.2% q/q; -0.7% y/y
· Profit before tax of N47.98bn, up +8.6% q/q; +120.3% y/y
· Profit after tax of N37.82bn, up +0.9% q/q; +325.2% y/y
Late yesterday, Zenith Bank released its Q2 2017 results, which showed a +8.6% q/q increase in PBT to N47.98bn but -8.6% lower than our estimate.
The bank’s performance was largely driven by the +198.7% q/q surge in non-interest income, which more than offset the +96.6% q/q spike in opex, N26.6bn q/q increase in loan impairment charges and the -3.2 q/q decline in net interest income.
We highlight that the loan impairment charge taken in the YTD (N42.4bn) is +31% higher than in FY 2016.
The surge in loan impairment charges could have been the result of the deterioration in asset quality. Non-performing loans (NPL) increased by +27% q/q to N99.2bn in Q2 2017, the majority of which was due to manufacturing and general commerce/trading exposures. This pushed the bank’s NPL ratio up +110bps q/q to 4.3% as at Q2 2017, slightly below the regulatory threshold of 5%.
In dissecting the numbers further, we point out that the non-interest performance was the result of the N45.9bn q/q jump in FX trading income. This does not appear to be driven by revaluation gains but may not be unconnected with the significant improvements in foreign currency liquidity following the recent shift in CBN’s FX policy.
Compared to Q2 2016, PBT spiked by +120.3% y/y due to the N70.4bn y/y surge in non-interest income, which cancelled out the N22.9bn y/y uptick in loan impairment charges and the +59.9% jump in opex.
In the near term, we believe the bank’s performance should continue to see support from the high interest rate environment, given our expectation that monetary policy may remain tight till year end. This combined with the gains from the increase in foreign currency liquidity should be a positive for earnings. However, we highlight that the continued deterioration in asset quality may remain a drag on PBT and ROE.
The company proposed a dividend of 25kobo per share representing a 1.04% dividend yield on yesterday’s close price.
While our models are under review we rate Zenith (BUY).
ZENITH BANK Q2 2017 figures (N millions) | |||||||||
Q2 2017 | Q/Q | Y/Y | I-one est. | Actual vs I-one est. | H1 2017 | Y/Y | I-one est. | Actual vs I-one est. | |
Gross Earnings | 232,704 | 57.5% | 101.7% | 149,083 | 56.1% | 380,440 | 77.1% | 296,819 | 28.2% |
Interest Income | 144,165 | 22.1% | 48.3% | 119,642 | 20.5% | 262,257 | 44.6% | 237,734 | 10.3% |
Interest Expense | (75,807) | 59.6% | 167.3% | (42,050) | 80.3% | (123,295) | 126.7% | (89,538) | 37.7% |
Net Interest Income | 68,358 | -3.2% | -0.7% | 77,593 | -11.9% | 138,962 | 9.4% | 148,197 | -6.2% |
Non-interest income | 88,539 | 198.7% | 389.2% | 29,440 | 200.7% | 118,183 | 253.8% | 59,084 | 100.0% |
Profit before provisions | 156,897 | 56.5% | 80.4% | 107,033 | 46.6% | 257,145 | 60.3% | 207,281 | 24.1% |
Loan Impairment charges | (34,512) | 337.6% | 196.1% | (7,458) | 362.7% | (42,398) | 197.9% | (15,344) | 176.3% |
Total Expenses | (74,402) | 54.5% | 39.0% | (47,092) | 58.0% | (122,564) | 32.8% | (95,254) | 28.7% |
PBT | 47,983 | 8.6% | 120.3% | 52,483 | -8.6% | 92,183 | 71.0% | 96,683 | -4.7% |
Tax | (10,165) | 51.7% | -21.1% | (8,499) | 19.6% | (16,866) | -8.5% | (15,200) | 11.0% |
Tax rate | 21.2% | 602bps | -3799bps | 16.2% | 499bps | 18.3% | -1591bps | 15.7% | 258bps |
PAT | 37,818 | 0.9% | 325.2% | 43,985 | -14.0% | 75,317 | 112.4% | 81,484 | -7.6% |
Source: NSE, Investment One Research
