October 18, 2018/Cordros Report
ZENITHBANK just published September 2018 results, with EPS growth of 16% y/y and 80% q/q to NGN1.99 in Q3-18. In the 9 months of the year, the bank’s profit has grown by 12% y/y to NGN144.18 bn.
- The 1% y/y uptick in Q3-18’s gross earnings was largely on the back of the 11% growth in interest income to NGN110.39 billion. Interest earned on customer loans (+8.35% y/y) and government securities (+44% y/y) were major drivers of the increase in interest income.
- On the other hand, decline in fees & commission income (-30% y/y, -10% q/q) led to a disappointing NIR (-18% y/y, -37% q/q) performance in the quarter. Over the 9 months period, NIR dropped 20%, with trading income, other income, and fees and commission income all recording respective negative growth of 35%, 24%, and 1%.
- Total impairment charges in the quarter was relatively flat, as it dipped 0.79% y/y. Together with a 9% decline in gross customer loans, annualized cost of risk for the period printed at 0.93% (vs. 2.8% in Q3-17), according to our estimates. It is also worth stating that gross loans dipped further by 2%, compared to H1-18, amidst continued paydown by obligors.
- The cost to income (CTI) ratio for the quarter inched up 200 bps y/y to 45%, but was much lower than the 53% (-900 bps) recorded in H1-18, amidst a 7% y/y increase and 22% q/q decrease in Q3-18 opex.
- It is worth stating that the bank recorded a tax credit of NGN2.5 billion in Q3-18, owing to a deferred tax asset recognition in tax expenses during the period. Further clarification on the item will be obtained upon our meeting with management. Nonetheless, the tax credit gave the boost to the bank’s earnings, as pre-tax profit was down 0.7% y/y in the quarter.
Comment: ZENITHBANK’s Q3-18 result is impressive. Annualized, the NGN192.24bn net profit reported as at 9M-18 is above Bloomberg consensus’ estimate for the full year by 6%, but lags our 2018E by 2%. Our estimates are under review.
| Income Statement (N’bn) | 9M’18 | 9M’17 | y/y | Q3’18 | Q2’18 | Q1’18 | Q3’17 | Q3’18 q/q | Q3’18 y/y |
| Gross earnings | 474.61 | 531.27 | -11% | 152.40 | 153.01 | 169.19 | 150.83 | 0% | 1% |
| Interest income | 339.06 | 361.79 | -6% | 110.39 | 86.05 | 142.62 | 99.53 | 28% | 11% |
| Interest expense | (110.55) | (160.30) | -31% | (35.84) | (27.99) | (46.72) | (37.00) | 28% | -3% |
| Net interest income | 228.52 | 201.49 | 13% | 74.56 | 58.06 | 95.90 | 62.53 | 28% | 19% |
| Fee and commision income | 69.97 | 71.02 | -1% | 23.26 | 25.87 | 20.84 | 33.27 | -10% | -30% |
| Trading income | 52.93 | 81.81 | -35% | 16.13 | 35.10 | 1.71 | 16.49 | -54% | -2% |
| Other income | 12.64 | 16.65 | -24% | 2.63 | 5.99 | 4.03 | 1.54 | -56% | 71% |
| Non-interest income | 135.54 | 169.48 | -20% | 42.01 | 66.96 | 26.57 | 51.29 | -37% | -18% |
| Total operating income | 364.06 | 370.97 | -2% | 116.57 | 125.02 | 122.47 | 113.82 | -7% | 2% |
| Loan impairment charges | (14.34) | (47.05) | -70% | (4.62) | (5.15) | (4.57) | (4.66) | -10% | -1% |
| Total operating expenses | (182.42) | (171.36) | 6% | (52.00) | (66.52) | (63.90) | (48.80) | -22% | 7% |
| Profit before tax | 167.31 | 152.55 | 10% | 59.95 | 53.36 | 54.00 | 60.37 | 12% | -1% |
| Income tax expense | (23.13) | (23.32) | -1% | 2.49 | (18.70) | (6.92) | (6.45) | -113% | -139% |
| Profit after Tax | 144.18 | 129.24 | 12% | 62.44 | 34.66 | 47.08 | 53.92 | 80% | 16% |
