FSDH Initial Reaction: Zenith Bank FY22 results 
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March 29, 2023/FSDH Report

Key Performance Highlights:

• Zenith Bank reported solid top-line results for FY22, with the gross earnings recording a 23.5% YoY jump, however, the net profit slipped 8.4% YoY to N223.9 billion in FY22 mainly due to impairment charges in Ghana and increased tax expenses. The gross earnings were powered by a 26.3% YoY growth in interest income, further supported by a 27.7% YoY jump in net fee and commission income and a 27.0% growth in trading income, partially offset by a 5.6% decline in other operating income.
   
• The Group’s Interest and similar income grew 26.3% YoY to N540.2 billion, while the Interest and similar expenses soared 62.5% YoY to N173.5 billion. The rise in interest income was primarily driven by a 26.8% growth in interest income from loans and advances to customers to N370.4 billion, supported by a 26.5% YoY jump in income from government and other bonds to N109.7 billion and an 80.9% YoY rise in interest income from Placement with banks and discount houses to N12.3 billion in FY22. On the other hand, the Group’s interest expense increased primarily due to a 79.2% rise in time deposits to N52.6 billion, a 165.4% growth in the current account to N37.9 billion, and a 93.1% increase in the savings account to N32.2 billion in FY22. Consequently, the net interest income rose 14.3% YoY to N366.6 billion in FY22, up from N320.8 billion in FY21. It should be noted that the debt restructuring programme in Ghana resulted in a significant impairment charge for the Group’s Ghana subsidiary. Consequently, impairment charges spiralled 105.7% YoY to N123.3 billion in FY22, which increased the cost of risk to 3.2% in FY22 from 1.9% in FY21. After impairment, the net interest income declined 6.7% YoY to N243.4 billion in FY22.
   
• For FY22, the Group’s net fee and commission income surged 27.7% YoY to N132.8 billion, driven by higher fees on electronic products, account maintenance, and foreign withdrawal charges. Trading income increased 27.0% YoY to N212.7 billion in FY22, primarily due to gains on treasury bills FVTPL. However, the Group’s other operating income declined 5.6% YoY to N35.5 billion in FY22, versus N37.6 billion in the prior year due to relatively lower loan recovery and dividend income. The Bank’s personnel expenses increased 8.2% YoY to N86.4 billion in FY22, while the operating expenses soared 23.5% YoY to N223.0 billion in FY22 due to higher Fuel and maintenance charges, insurance premiums, bank charges, and AMCON levy. Consequently, the profit before tax merely grew 1.5% YoY to N284.7 billion in FY22. With the effective implementation of the Finance Act, the Group’s effective tax rate went up to 21.3% in FY22 from 12.7% in FY21. As a result, the company reported an after-tax profit of N223.9 billion in FY22, down 8.4% YoY, compared to N244.6 billion in FY21. Accordingly, the Group earnings per share decreased to N7.14/share in FY22 from N7.78/share in FY21.
   
• With the rising interest rate hikes globally and in Nigeria as well, the Group recorded an increase in the cost of funds by 40 bps to 1.9% in FY22 from 1.5% in FY21. The Group also recorded a 39% YoY growth in total customer deposits to N6.47 trillion in FY22 across all products and deposit segments (corporate and retail). The continued high-yield environment improved the net interest margin by 60 bps to 7.1% in FY22. Total assets rose 30% YoY to N12.3 trillion at the end of FY22 from N9.5 trillion at the end of FY21, mainly due to rapid growth in customer deposits. With the steady and continued recovery in economic activities, the Group prudently grew its gross loans by 18% YoY to N4.1 trillion in FY22. This was achieved at a moderate NPL ratio of 4.3% (FY21: 4.2%). The capital adequacy ratio decreased to 19.8% in FY22 from 21.0% in FY21, while the liquidity ratio improved to 75.0% in FY22 from 71.6% in FY21. It is worth noting that prudential ratios such as liquidity and capital adequacy remained well-above regulatory thresholds.
   
• On 28 March 2023, Zenith proposed a final dividend of N2.90 per share (bringing the total dividend to N3.20 per share in FY22), subject to appropriate withholding tax and shareholder approval. The final dividend will become payable on 2 May 2023 to all shareholders registered in the company’s books at the close of business on 14 April 2023.
   
• In 2023, the Group plans to expand its frontiers as it reorganises into a holding company structure adding new verticals to business to grow in local and international markets. On 3 March 2023, the Central Bank of Nigeria (CBN) granted approval-in-principle for Zenith Bank to operate a non-operating financial holding company structure. Furthermore, the CBN approved Mr. Jim Ovia as the Chairman of Zenith Holdco Plc (in-formation) and to continue as the Chairman of Zenith Bank until the commencement of Zenith Holdco.

Market Reaction: The investor reaction to the solid FY22 results was positive as the stock rose 2.80% to N25.70 versus a 0.90% gain for the All-Share Index on 29/3.

Zenith Bank Earnings Highlight FY22