FSDH Initial Reaction: Zenith Bank 2Q22 results 
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August 25, 2022/FSDH Research

Key Performance Highlights:

• Zenith Bank reported a solid topline for 2Q22, with the gross earnings recording a 13.3% YoY jump and the net profit growing a steady 0.3% YoY to N53.2 billion in 2Q22. The gross earnings were powered by a 63.2% YoY spurt in Net fee and commission income, supported by a 12.2% YoY jump in interest income, partially offset by a 17.1% fall in other operating income. The Group’s Interest and similar income soared 12.2% YoY to N115.3 billion, while the Interest and similar expenses rose 19.8% YoY to N31.1 billion. The rise in interest income was primarily driven by a 6.9% growth in interest income from loans and advances to customers to N75.6 billion, supported by a 24.1% YoY jump in income from government and other bonds to N24.3 billion, and a 68.9% YoY rise in interest income from Placement with banks and discount houses to N3.9 billion in 2Q22. The Group reported a 19.8% YoY increase in interest expense to N31.1 billion, primarily due to a 44.5% rise in borrowed funds to N11.0 billion in2Q22. Consequently, the net interest income rose 9.7% YoY to N84.2 billion in 2Q22, up from N77.8 billion in 2Q21. The impairment charge for the period was up 15.2% YoY. After impairment, the net interest income increased by 8.2% YoY to N65.8 billion in 2Q22 from N60.8 billion in 2Q21.
   
• The Group reported a 21.4% YoY rise in non-interest income to N91.8 billion in 2Q22, driven by a 66.5% YoY jump in fees on electronic products to N9.9 billion from N5.9 billion in 2Q21, supported by a 44.0% YoY jump in the gain on treasury bills FVTPL to N47.7 billion in 2Q22 compared to N33.2 billion in 2Q21. The Bank’s personnel expenses declined by 4.3% YoY to N18.2 billion in 2Q22, while the operating expenses vaulted 30.3% YoY. Consequently, the profit before tax was up 10.7% YoY to N62.0 billion in 2Q22. The after-tax profit edged 0.3% higher to N53.2 billion compared to N53.1 billion in the prior period, resulting from an increased effective tax rate to 14.2% (2Q21:5.3%).
   
• The Group recorded an increase in the cost of funds by 10 bps to 1.4% from 1.3%. The Group also recorded an 11% YTD increase in total customer deposits to N7.15 trillion. The retail strategy of the Group continued to deliver outstanding results as retail deposits grew by 17% YTD from N1.82 trillion to N2.13 trillion in 2Q21. Despite the elevated yield environment, the cost of funds increased only marginally from 1.3% in 1H21 to 1.4% in 1H22. The increase in the cost of funds was lower than the increase in yields on interest-generating assets, giving rise to an improved net interest margin of 7.1% in 1H22 from 6.4% in 1H21. Total assets rose to N10.1 trillion at the end of June 2022 from N9.45 trillion at the end of December 2021. Despite the headwinds imposed by the operating environment, the Group grew its risk assets as gross loans grew by 5% YTD, to N3.7 trillion. This was achieved at a moderate NPL ratio of 4.4% (FYE 2021: 4.2%) and a cost of risk of 1.4% (1H21: 1.3%). Prudential ratios such as liquidity and capital adequacy also remained stable and well-above regulatory thresholds at 60.5% and 21.0%, respectively.
   
• Zenith Bank announced an interim dividend of N0.30 per share (1H21: N0.30 per share), subject to appropriate withholding tax, payable on September 13, 2022, to all shareholders registered in the company’s books at the close of business on September 6, 2022.                                                                                                          
• On May 31, 2022, Zenith Bank Plc announced the redemption of the balance of $107.4 million of its $500 million Eurobond notes due May 30, 2022. The notes were issued on May 30, 2017, as the second tranche of the Bank’s $1 billion Global Medium Term Note Program, with a 5-year tenor and coupon rate of 7.375 percent. In September 2019, the Bank had redeemed $392.6 million of the Notes through a Cash Tender Offer ahead of its maturity date of May 30, 2022.                                               
• On July 1, 2022, Zenith Bank announced the retirement of two Non-Executive Directors – Mr. Jeffrey Christopher Efeyini and Professor Chukuka Sam Enwemeka from the Board of the Bank with effect from July 1, 2022, following the expiration of their tenure.

Market Reaction: The Company reported results about an hour before the market close, and the investor reaction to the 2Q22 results was subdued as the stock remained unchanged at N22.00 versus a 0.07% loss for the NGX banking index and a 1.60% loss for the All-Share Index (23/8). Moreover, the stock closed flat even on Wednesday (24/8) versus a 0.25% gain in the All-Share Index.

Zenith Bank Earnings Highlight 2Q22

Source: Company Financials, FSDH