August 24, 2022/CSL Research
Zenith Bank’s H1 2022 AUDITED numbers showed 18.5% y/y growth in Interest Income driven mainly by a modest increase in the loan book and improved interest margins. Q/q (Q2 2022 compared with Q1 2022), Interest Income was down 8.7% q/q. Net Loans to Customers were up 4.3% in H1 relative to December 2021 but down from the Q1 2022 position. Interest Expense also grew strongly, up 29.5% y/y. However, as expected for the tier 1 banks with a high proportion of low-cost funds, despite the increasing yield environment, the cost of funds increased only marginally to 1.4% in June 2022 from 1.3% in June 2021. Total Customer Deposits were up 10.5% in June 2022 compared with December 2021. Overall, Net Interest Income grew 15.5% y/y but was down 16.2% q/q while Net Interest Margins (NIMs) improved to 7.1% for H1 2022 compared with 6.4% in June 2021 as yields grew faster than funding cost.
Net Fee and Commission Income was up 35.2% y/y driven mainly by growth in account maintenance fees (up 24.3% y/y), and Fees on electronic products (up 44.5% y/y). Q/q, Net Fee and Commission was down 7.5% in Q2 2022 compared with Q1 2022.
| H1 2022 Nm |
 |
Source: Company, CSL Research
Other Income (Trading gains and Other Operating Income) was up 6.7% y/y but significantly grew q/q, up 156%. The y/y growth was driven mainly by a 43.7% y/y growth in trading gains, mainly gains on treasury bills FVTPL.
Impairment charge was up 26.9% y/y to N25.1bn in H1 2022 from N19.8bn in H1 2021, bringing H1 2022 annualised Cost of Risk (COR) to 1.4% compared with 1.3% for H1 2021. With NPL ratio of 4.3% and coverage ratio of 131.7% (up from 114.0% in December 2021), we do not see any near-term risk to the bank’s asset quality ratios.
OPEX grew 19.2% y/y. The slightly higher y/y growth in Opex when compared with a 16.4% y/y growth in Total Operating Income led to a marginal deterioration in Cost to Income Ratio (ex-provisions) to 53.5% for H1 2022 compared with 52.3% in H1 2021.
Overall, PBT grew 11.1% y/y to N130.0bn in H1 2022 while Net Profit grew 5.0% y/y to N111.4bn bringing H1 2022 annualised ROAE to 17.5% compared with 20.4% for December 2021 and 18.8% for H1 2021.
The bank’s management proposed an interim dividend of N0.30/s. The bank still rates well based on capital adequacy (CAR 21.0% up from 21.1% in December 2021), 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 N22.00/s.
