19/10/2018/InvestmentOne Report
- Net interest income of N74.6billion, up 28.4% q/q; up 19.2% y/y
- Non-interest income of N42.0billion, down 37.3% q/q, down 18.1% y/y
- Profit before tax of NN59.9billion, up 12.4% q/q; down 0.7% y/y
- Profit after tax of N62.4billion, up 80.17% q/q; up 15.8% y/y
Zenith Bank published its Q3 2018 results yesterday revealing a decent performance q/q. PBT and PAT came in strong at N59.9billion and N62.4billion respectively, reflecting a q/q increase of 12.4% and 80.2% respectively. This was largely on the back of a surprising 28.4% q/q rise in net interest income, despite the declining yield environment, unlike its peers, GTB and UBA who recorded a 9.5% q/q and 31.1% q/q decline in net interest income respectively. Also supporting bottom line performance was the 10.3% q/q decline in impairment charges and the 21.8% q/q decline in operating expense.
Net Interest Income Thrives Despite Lower Yields
Unlike the trends we have seen in the first two banks to release results this week, Zenith Bank recorded a 28.3% q/q increase in interest income, as the bank saw increased income from treasury bills trading to N24.1billion in Q3 2018 from N558million in Q2 2018, after its reclassification in Q2 2018. This then fed into the rise in net interest income recorded.
However, on a y/y basis, net interest income was up 13.4% to N228.5billion, due to the 31.0% y/y drop in interest expense to N110.5billion, as the bank’s cost of funds dropped 210bps y/y to 3.3% in 9M 2018. Although net loans is down 15.5% y/y as the current economic conditions have not favoured lending, the bank seems to have shifted focus to interest income from fixed income securities and placements, which were up 25.8% y/y and 111.7% y/y respectively. As a result, the bank’s adjusted Net Interest Margin (NIM) was up 245bps y/y to 9.65%.
Lower Impairment Charges and Opex Support Bottom line
Impairment charges came in 10.3% lower q/q to N4.6billion, a reflection of improving macro-economic conditions; a trend we have seen in both UBA and GTB. Cost of risk however came in flat q/q at 0.9%. Opex was also down 21.8% q/q to N52.0billion on the back of NDIC and AMCON charges not recorded in Q3 2018.
As a result, PBT and PAT went up 12.4% q/q and 80.2% q/q despite the 37.3% q/q decline in non-interest income to N42.0billion. The decline in non-interest income was largely attributable to the 10.1% q/q decline in fees and commission, as we suspect the bank struggled to gather enough income from credit related fees, attributable to weak credit growth; also responsible for the decline was the 54.0% q/q decline in trading income, on the back of the N2.2billion loss in derivatives trading.
Furthermore, even as non-interest income dipped 20.0% y/y in 9M 2018 and opex was up 6.4% y/y, the 69.5% y/y drop in impairment charges was enough to boost PBT and PAT up 9.7% y/y and 11.6% y/y to N167.3billion and N144.2billion respectively.
Going forward, we reiterate our stance on the banks earnings performance coming under pressure in FY 2018 as a result of its inability to grow its loan book aggressively and relatively lower interest rate environment compared to 2017. We opine that the bank, as with its peers would seek to take advantage of the potential higher yield environment in Q4 2018. Although management has noted that it looks to take advantage of the Differentiated Cash Reserve Requirement (DCRR) scheme, under the Real Sector Support Facility Program, we maintain our FY2018E loan book growth of 1.1% and our sustainable ROE of 21% (9M 2018 ROE: 23%)
ZENITH BANK PLC Q3 2018/9M 2018 (YE: DEC) (N millions) |
| ||||
| |||||
Q3 2018 | Q/Q
| Y/Y
| 9M 2018 | Y/Y
| |
Interest Income | 110,393 | 28.3% | 10.9% | 339,063 | -6.3% |
Interest Expense | -35,837 | 28.0% | -3.1% | -110,546 | -31.0% |
Net Interest Income | 74,556 | 28.4% | 19.2% | 228,517 | 13.4% |
Non-interest income | 33,912 | -5.4%
| 399.3%
| 135,544 | -20.0% |
Profit before provisions | 86,624 | -7.9%
| 29.6%
| 364,061 | -1.9% |
Loan Impairment charges | -4,618 | -10.3% | -0.8% | -14,338 | -69.5% |
Operating Expenses | -52,002 | -21.8% | 6.6% | -182,416 | 6.4% |
PBT | 59,949 | 12.4% | -0.7% | 167,307 | 9.7% |
Tax | 2,493 | -113.3% | -61.4% | -23,128 | -0.8% |
Tax rate
| -4.2%
| -3920bps
| -1484bps
| 13.8%
| -146bps
|
PAT | 62,442 | 80.17% | 15.8% | 144,179 | 11.6%
|
Source: Company financials, Investment One Financial Services Research
9M 2018 BANKS COMPARISON SHEET | |||||
NGN billion (unless stated otherwise) |
| ZENITH | GTB | UBA | |
Key Income Statement Figures | Gross Earnings | 474.6 | 337.3 | 374.8 | |
Net Interest Income | 228.5 | 170.6 | 150.7 | ||
Non-interest Income | 135.5 | 97.2 | 87.7 | ||
Total Expenses | -182.4 | -101.8 | -149.1 | ||
Loan Impairment Charges | -14.3 | -1.8 | -10.7 | ||
Profit Before Tax | 167.3 | 164.2 | 79.1 | ||
Y/Y PBT Growth
|
| 9.70%
| 9.50%
| 1.30%
| |
Dividend (Kobo per share) | nil | nil | nil | ||
EPS (kobo per share) | 458 | 503 | 172 | ||
Key Balance Sheet Figures | Total Assets | 5,618 | 3,213 | 4,507 | |
Total Liabilities | 4,840 | 2,631 | 3,998 | ||
Total Equity | 778 | 582 | 509 | ||
Key Ratios | Net Interest Margin | 9.65% | 8.60% | 5.90% | |
Cost of Fund | 3.30% | n/a | n/a | ||
Cost to Income | 50.10% | 38.00% | 62.50% | ||
NPL ratio | n/a | 5.60% | 7.00% | ||
Liquidity (bank level) | n/a | n/a | 43.90% | ||
Cost of Risk | 0.90% | 0.20% | 0.80% | ||
Capital adequacy ratio (bank level) | n/a | n/a | n/a | ||
ROE | 23.00% | 33.20% | 15.70% | ||
ROA | 3.40% | 5.60% | 1.80% | ||
Source: Company financials, Investment One Financial Services Research
