FSDH Initial Reaction: Zenith Bank 2Q23 results 
Kindly click here to download the report.

September 12, 2023/FSDH Report

Key Performance Highlights:

• Zenith Bank recorded a robust set of numbers for 2Q23, with the gross earnings jumping 227.0% YoY to N697.3 billion and the net profit climbing 447.5% YoY to N66.0 billion in 1Q23. The gross earnings were primarily driven by a 44.4x jump in other operating income to N364.0 billion (compared to N8.1 billion operating income in 2Q22), further supported by a 94.0% YoY growth in interest income, and a 31.4% growth in trading income, slightly offset by a 48.5% YoY fall in net fee and commission income.
   
• The Group’s Interest and similar income vaulted 94.0% YoY to N697.3 billion, while the Interest and similar expenses soared 165.7% YoY to N82.7 billion. The rise in interest income was primarily driven by a growth in interest income from loans and advances to customers, supported by a rise in income from government and other bonds and a rise in interest income from Placement with banks and discount houses. On the other hand, the Group’s interest expense increased primarily due to a growth in the borrowed funds, a rise in time deposits, and an increase in the savings accounts  in 2Q23. Consequently, the net interest income rose 67.5% YoY to N141.1 billion in 2Q23, up from N84.2 billion in 2Q22. Furthermore, impairment charges shot up 10.9x YoY to N200.2 billion in 2Q23. After impairment, the group reported a net loss of N59.1 billion in 2Q23 versus net interest income of N65.8 billion in 2Q22.
   
• In 2Q23, the Group’s net fee and commission income was down by 48.5% YoY to N9.7 billion, due to credit-related fees, account maintenance fees, and foreign withdrawal charges. Trading income increased 31.4% YoY to N69.1 billion in 2Q23, primarily due to gains on other trading books. Moreover, the Group reported other operating income of N364.0 billion in 2Q23, versus an operating income of N8.2 billion in the prior period due to higher loan recovery and gain on foreign currency revaluation. The Bank’s personnel expenses rose 81.8% YoY to N33.1 billion in 2Q23, while the operating expenses soared 14.9% YoY to N79.9 billion in 2Q23 due to higher Fuel and maintenance charges, insurance premiums, and AMCON levy. It should be noted that the triple-digit top-line growth spurred the bottom line as the Group recorded a 427.2% YoY surge in profit before tax to N263.8 billion in 2Q23. Although the Group’s effective tax rate went down to 14.4% in 2Q23 from 17.6% in 2Q22, the company reported an after-tax profit of N225.7 billion in 2Q23, up 447.5% YoY, compared to N41.2 billion in 2Q22. Accordingly, the Group earnings per share grew to N7.19/share in 2Q23 from N1.85/share in 2Q22.
   
• The Group recorded an increase in the cost of funds by 120 bps to 2.6% in 2Q23 from 1.4% in 2Q22 due to the significant spike in interest rates. It also affected net interest margin (NIM), which reduced from 7.1% in 2Q22 to 5.9% in 2Q23. However, the Group also recorded a 30% growth in total customer deposits to N11.6 trillion in 2Q23 compared to N9.0 trillion in 4Q22. Total assets rose 31% to N16.0 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 32% from N4.1 trillion in 4Q22 to N5.4 trillion in partly due to the revaluation of foreign currency denominated loans as well as growth in local currency loans. This was achieved at a moderate NPL ratio of 3.9% (4Q22: 4.3%). The capital adequacy ratio improved to 22.0% in 2Q23 from 19.8% in 2Q22, while the liquidity ratio came in at 61.0% in 2Q23 from 75% in 2Q22. It is worth noting that prudential ratios such as liquidity and capital adequacy remained well-above regulatory thresholds.
   
• On 11 September 2023, Zenith Bank PLC proposed a interim dividend of N0.50 per share, subject to appropriate withholding tax and shareholder approval. The interim dividend will become payable on 29 September 2023 to all shareholders registered in the company’s books at the close of business on Friday, 22 September 2023.

Market Reaction: The investor reaction to the 2Q23 results was subdued as the stock declined 3.45% to N33.60 versus a 0.80% loss for the All-Share Index on 12/9.

Zenith Bank Earnings Highlight 2Q23

Source: Company Financials, FSDH