April 29, 2022/CSL Research

Zenith Bank’s Q1 2022 unaudited numbers showed a 24.9% y/y growth in Interest Income driven mainly by strong growth in Net loans to customers and a gradual improvement in pricing. While Net Loans to Customers grew 25.0% y/y, Interest Income on such loans was up 35.7%.  Net Loans to Customers were up 5.9% in Q1 2022 relative to December 2021. Interest Expense also grew strongly, up 43.5% y/y, bringing cost of funds to 1.3%, higher than Q1 2021 cost of funds of 1.1% but lower than that of FY 2021 of 1.5%. Total Customer Deposits were up 27.8%y/y but up 12.1% in March 2022 compared with December 2021. Overall, Net Interest Margins (NIMs) improved to 7.3% for Q1 2022 compared with 6.0% in Q1 2021.

Q1 2022 Nm

Source: Company, CSL Research

Other Income (Trading gains and Other Operating Income) was up 20.0% y/y. The y/y growth was driven mainly by a 126.9% y/y growth in treasury bill trading income to N33.0bn. 

Impairment charge was up 75.3% y/y to N6.8bn for Q1 2022, bringing Q1 2022 annualised Cost of Risk (COR) to 0.8% compared with 0.5% for Q1 2021. With NPL ratio of 4.2% and coverage ratio of 97.3% (down from 114.0% in December 2021), we do not see any near-term risk to the bank’s asset quality ratios, though we expect Impairment Charge to rise in 2022. 

OPEX grew 19.5% y/y. The slightly higher y/y growth in Opex when compared with a 17.4%y/y growth in Total Operating Income led to a marginal deterioration in Cost to Income Ratio (ex-provisions) to 52.6% for Q1 2022 compared with 51.7% in Q1 2021.  

Overall, PBT grew 11.4% y/y to N67.99bn in Q1 2022 while Net Profit grew 9.7% y/y to N58.2bn bringing Q1 2022 annualised ROAE to 17.8% compared with 20.4% for December 2021 and 19.2% for Q1 2021.

The bank still rates well based on capital adequacy (CAR 22.1% up from 21.1% 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 N37.20/s. Current Price N24.55/s.