March 29, 2023/CSL Research

Zenith Bank’s FY 2022 AUDITED numbers showed 26.3% y/y growth in Interest Income driven mainly by a modest increase in the loan book and improved yields. Q/q (Q4 2022 compared with Q3 2022), Interest Income was up marginally by 0.3%. Net Loans to Customers grew 19.6% y/y. Interest Expense also grew strongly, up 62.5% 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 moderately to 1.9% for FY 2022 from 1.5% in FY 2021. Total Customer Deposits were up 38.7% in FY 2022 compared with FY 2021. Overall, Net Interest Income grew 14.3% y/y but was down 14.7% q/q while Net Interest Margins (NIMs) improved to 7.3% for FY 2022 compared with 6.7% for FY 2021 as yields grew faster than funding cost.

Net Fee and Commission Income was up 27.7% y/y driven mainly by growth in account maintenance fees (up 32,4%y/y), Fees on electronic products (up 22.1% y/y), and foreign withdrawal charges, up 70.3% y/y.  Q/q, Net Fee, and Commission were down 8.1% in Q4 2022 compared with Q3 2022.

FY 2022 Nm

Source: Company, CSL Research.

Other Income (Trading gains and Other Operating Income) was up 21.0% y/y but grew significantly q/q, up 397.7%. The y/y growth was driven mainly by a 68.1% y/y growth in trading gains on treasury bills FVTPL.

Impairment charge grew significantly, up 105.7% y/y to N123.3bn for FY 2022 from N59.9bn for FY 2021, bringing FY 2022 Cost of Risk (COR) to 3.2% compared with 1.9% for FY 2021. The Group exchanged N123.6bn (GHS 2,675,754,659 ) of its existing Government of Ghana bonds for new bonds with maturities from 2027 to 2038 under the Ghana Domestic Debt Exchange Programme. The effect of the exchange on impairment of the existing bonds at 31 December 2022 was recognised in the consolidated financial statements and it appears the hit was taken at once and not spread over 4 years, hence the jump in impairments. Impairment Charge on financial and non-financial assets of N58.7bn was taken for Zenith Bank Ghana and the subsidiary reported a loss of N21.0bn. Beyond Ghana, with NPL ratio of 4.3% and coverage ratio of 115.9% (up from 114.4% in FY 2021), we do not see any near-term risk to the bank’s asset quality ratios. 

OPEX grew 17.3% y/y. The slightly lower y/y growth in Opex , when compared with an 18.7% y/y growth in Total Operating Income, led to a marginal improvement in Cost to Income Ratio (ex-provisions) to 45.4% for FY 2022 compared with 46.0% in FY2021.  

Overall, PBT grew 1.5% y/y to N284.7bn for FY 2022 while Net Profit declined 8.4% y/y to N223.9bn bringing FY 2022 ROAE to 16.8% compared with 20.4% for FY 2021. The effective grew to 21.3% for FY 2022 from 12.7% in 2021.  

The bank’s management proposed a final dividend of N2.90/s. This added to an interim dividend of N0.30/s brings the total dividend to N3.20/s implying a dividend yield of 12.8% based on yesterday’s closing price of N25/s.  

The bank still rates well based on capital adequacy (CAR 19.8% down from 21.0% 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 N37.60/s. Current Price N25.00/s.