FSDH Initial Reaction: Zenith Bank 3Q22 results 
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November 4, 2022/FSDH Research

Key Performance Highlights:

• Zenith Bank reported a solid all-around performance for 3Q22, with the gross earnings recording a 24.7% YoY jump to N215.8 billion and the net profit growing 15.5% YoY to N62.9 billion in 3Q22. The gross earnings were powered by a 42.1% YoY growth in interest income, further supported by a 16.2% YoY jump in net fee and commission income and a massive 430.6% growth in other operating income, partially offset by an 80.1% fall in trading income. Sequentially, the gross earnings increased by 1.2% QoQ to N215.8 billion (2Q22: N213.2 billion) and the net profit vaulted 18.2% QoQ to N62.9 billion in 3Q22, compared to N53.2 billion in 2Q22.
   
• The Group’s interest and similar income soared 42.1% YoY to N149.0 billion, while the interest and similar expenses rose 69.0% YoY to N50.7 billion in 3Q22. The rise in interest income was primarily driven by a 74.5% growth in interest income from government and other bonds to N35.4 billion, supported by a 37.0% YoY jump in income from loans and advances to customers to N97.8 billion. The Group reported a 69.0% YoY increase in interest expense to N50.7 billion, primarily due to a 103.1% rise in borrowed funds to N25.3 billion in 3Q22 from N12.5 billion in 3Q21. Consequently, the net interest income soared 31.2% YoY to N98.2 billion in 3Q22, up from N74.8 billion in 3Q21. The impairment charge for the period was up 33.1% YoY. After impairment, the net interest income increased by 31.0% YoY to N86.2 billion in 3Q22 from N66.0 billion in 3Q21.
   
• For 3Q22, the Group’s net fee and commission income soared 16.2% YoY to N35.6 billion, driven by a 64.6% YoY jump in fees on electronic products to N11.4 billion from N6.9 billion in 3Q21. Trading income dropped to N6.2 billion from N31.4 billion in 3Q21, primarily due to a N2.4 billion loss on treasury bills FVTPL compared to a treasury bill trading gain of N30.8 billion in 3Q21. The Group’s other operating income ballooned 430.6% YoY to N21.1 billion in 3Q22, versus N4.0 billion in prior year quarter. The Bank’s personnel expenses declined by 4.4% YoY to N21.7 billion in 3Q22, while the operating expenses vaulted 21.6% YoY. Consequently, the profit before tax was up 15.6% YoY to N72.6 billion in 3Q22. With an increased tax expense (+16.3% YoY), the company reported an after-tax profit of N62.9 billion compared to N54.5 billion in the prior period. Accordingly, the Group earnings per share increased from N1.73/share in 3Q21 to N2.00/share in 3Q22.
   
• The Group recorded an increase in the cost of funds by 30 bps to 1.7% from 1.4%. The Group also recorded a 24% YTD increase in total customer deposits to N8.04 trillion. Due to the elevated yield environment, the cost of funds increased by 30 bps from 1.4% in 9M21 to 1.7% in 9M22 which affected the net interest margin by 60 bps to 6.2% in 9M22 from 6.8% in 9M21. Total assets rose to N11.34 trillion at the quarter end, mainly driven by growth in customers’ deposits. Despite the headwinds imposed by the operating environment, the Group grew its risk assets as gross loans grew by 16% YTD, to N4.1 trillion. This was achieved at a moderate NPL ratio of 4.4% (FYE 2021: 4.2%) and a cost of risk of 1.3% (9M21: 1.3%). Prudential ratios such as liquidity and capital adequacy also remained well-above regulatory thresholds at 68.9% and 19.1%, respectively.

Market Reaction: The investor reaction to the 3Q22 results was positive as the stock increased 2.55% to N20.10 versus a 0.52% loss for the All-Share Index on 27/10. Moreover on 28/10, the stock remained unchanged at N20.10 versus a 1.60% loss in the All-Share Index.

Zenith Bank Earnings Highlight 3Q22

Source: Company Financials, FSDH