FSDH Initial Reaction: Zenith Bank 1Q23 results
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May 3, 2023/FSDH
Key Performance Highlights:
- Zenith Bank recorded a robust set of numbers for 1Q23, with the gross earnings jumping 41.0% YoY to N270.0 billion and the net profit climbing 13.4% YoY to N66.0 billion in 1Q23. The gross earnings were driven by a 51.6% YoY growth in interest income, further supported by other operating income of N4.7 billion (compared to N8.9 billion operating loss in 1Q22), a 4.0% growth in trading income, and a 2.0% YoY rise in net fee and commission income.
- The Group’s Interest and similar income vaulted 51.6% YoY to N191.6 billion, while the Interest and similar expenses soared 174.1% YoY to N70.8 billion. The rise in interest income was primarily driven by a 41.1% growth in interest income from loans and advances to customers to N123.9 billion, supported by a 51.0% YoY jump in income from government and other bonds to N40.4 billion and a rise in interest income from Placement with banks and discount houses to N11.9 billion in 1Q23 (1Q22: N1.0 million). On the other hand, the Group’s interest expense increased primarily due to a 195.2% growth in the borrowed funds to N24.4 billion, a 138.5% rise in time deposits to N20.6 billion, and a 219.7% increase in the savings account to N14.7 billion in 1Q23. Consequently, the net interest income rose 20.1% YoY to N120.8 billion in 1Q23, up from N100.5 billion in 1Q23. Furthermore, impairment charges increased 14.4% YoY to N7.7 billion in 1Q23. After impairment, the net interest income rose 20.6% YoY to N113.1 billion in 1Q23.
- In 1Q23, the Group’s net fee and commission income grew 2.0% YoY to N34.1 billion, driven by credit-related fees, account maintenance fees, and foreign withdrawal charges. Trading income increased 4.0% YoY to N33.9 billion in 1Q23, primarily due to gains on other trading books. Moreover, the Group reported other operating income of N4.7 billion in 1Q23, versus an operating loss of N8.9 billion in the prior period due to higher loan recovery and gain on foreign currency revaluation. The Bank’s personnel expenses rose 7.6% YoY to N23.1 billion in 1Q23, while the operating expenses soared 25.5% YoY to N68.1 billion in 1Q23 due to higher Fuel and maintenance charges, insurance premiums, bank charges, and AMCON levy. It should be noted that the double-digit top-line growth spurred the bottom line as the Group recorded a 27.4% YoY surge in profit before tax to N86.6 billion in 1Q23. Although the Group’s effective tax rate went up to 23.8% in 1Q23 from 14.4% in 1Q22, the company reported an after-tax profit of N66.0 billion in 1Q23, up 13.4% YoY, compared to N58.2 billion in 1Q22. Accordingly, the Group earnings per share grew to N2.10/share in 1Q23 from N1.85/share in 1Q22.
- The Group recorded an increase in the cost of funds by 140 bps to 2.7% in 1Q23 from 1.3% in 1Q22 due to the significant spike in interest rates. It also affected net interest margin (NIM), which reduced from 7.3% in 1Q22 to 6.9% in 1Q23. However, the Group also recorded a 2% growth in total customer deposits to N9.14 trillion in 1Q23 compared to N8.98 trillion in 4Q22. Total assets rose 9% to N13.36 trillion at the end of 2Q23 from N12.29 trillion at the end of 4Q22, mainly due to rapid growth in customer deposits. Loans and advances also grew marginally by 1% from N4.12 trillion in 4Q22 to N4.15 trillion in 1Q23 as customers continue to adjust to the full impact of higher rates on risk assets. This was achieved at a moderate NPL ratio of 4.3% (4Q22: 4.3%). The capital adequacy ratio marginally decreased to 19.5% in 1Q23 from 19.8% in 1Q22, while the liquidity ratio remained strong at 72.0% in 1Q23. It is worth noting that prudential ratios such as liquidity and capital adequacy remained well-above regulatory thresholds.
Market Reaction: The investor reaction to the blockbuster 1Q23 results was positive as the stock rose 3.07% to N23.50 versus a 0.20% loss for the All-Share Index on 2/5.
Zenith Bank Earnings Highlight 1Q23
Source: Company Financials, FSDH
