November 1, 2021/CSL Research
Zenith Bank’s 9M 2021 unaudited results showed a 3.1% y/y decline in Interest Income. Q/q however, Interest Income grew marginally, up 2.1% in Q3 2021 relative to Q2 2021. The y/y decline was mainly due to steep declines in interest on Placement with banks/discount houses, treasury bills and promissory notes in a relatively low yield environment. This was however mitigated by growth in interest income from loans and advances. Net Loans were up 8.7% in 9M 2021 from December 2020. Interest Expense on the other hand declined 20.9% y/y but was up 15.8% in Q3 relative to Q2, bringing cost of funds marginally higher to 1.4% compared with 1.3% in H1 2021 and 1.1% in Q1 2021. Cost of funds of 1.4% in 9M 2021 however, compares favourably with 2.2% in the same period of 2020. Customer Deposits were up 13.1% in September 2021 compared with December 2020. Overall, Net Interest Margins (NIMs) is down to 6.8% in September 2021 compared with 8.3% in September 2020.
Net Fee and Commission Income was up 32.4% y/y and 88.6% in Q3 compared with Q2. The y/y growth was mainly on the back of a 29.9% y/y growth in fees on electronic products, a 41.9% y/y growth in account maintenance fees, a 55.3% y/y growth in Commissions on agency and collection services and 17.8% y/y growth in credit related fees. The bank must have significantly increased volume of transactions across all channels, and we view this positively.
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Source: Company, CSL Research.
Other Income (Trading Income and Other Operating Income) was up 0.1% y/y but down 40.4 q/q (Q3 2021 compared with Q2 2021). The q/q decline was mainly due to a 36.5% decline in trading gains to N31.4bn in Q3 from N49.4bn in Q2 and a 59.8% decline in Other Operating Income to N3.98bn in Q3 compared with N9.9bn in Q2. The bank reported net gain on other trading books of N12.7bn (of which N39.9bn relates to net gains on derivatives) in Q2 compared with N431m derivatives income in Q3.
Impairment charge was up 14.7% y/y to N28.8bn in 9M 2021, bringing 9M 2021 annualised Cost of Risk (COR) to 1.3%, same as in 9M 2020. Q/q however, Impairment Charge declined 43.6% to N9bn in Q3 compared with N15.9bn in Q2 2021. The bank took a higher impairment in Q2 considering macros projections
With NPL ratio of 4.5% and coverage ratio of 112.4%, we do not see any near-term risk to the bank’s asset quality ratios.
OPEX grew 11.5% y/y. The y/y growth coupled with a slower growth in total Operating Income (up 7.2% y/y) led to a deterioration in Cost to Income Ratio (ex-provisions) to 51.2% in 9M 2021 compared with 49.2% in 9M 2020. Q/q, OPEX was down 14.1%.
Overall, PBT grew 1.4% y/y to N179.8bn in 9M 2021 while Net Profit grew 0.8% y/y due to a marginally higher tax charge, to N160.6bn bringing 9M 2021 annualised ROAE to 18.6% compared with 21.5% for December 2020.
The bank still rates well based on capital adequacy (CAR 20.1% down from 23.0% in December 2020), sustainable long-term dividend yield, and stable asset quality.
We have a Buy recommendation on the stock with a target price target of N34.19/s. Current Price N25.25/s.
