September 11, 2023/Cordros Report
Zenith Bank Plc (ZENITHBANK) published its H1-23 interim financial results this morning, recording a 161.7% y/y expansion in EPS to NGN9.29 (H1-22: NGN3.55). The significant growth in the bank’s earnings was supported by the broad-based expansion across its funded (+71.9% y/y) and non-funded (+246.1% y/y) income lines. Management proposed an interim dividend of NGN0.50/share (H1-22; NGN0.30/share), translating to a dividend yield of 1.4% based on the last closing price of NGN36.95/share (11 September).
The bank recorded a 71.9% y/y growth in funded income to NGN415.43 billion, driven by (1) higher yields in the fixed income market and (2) growth in its earning assets (+22.5% YTD to NGN12.25 trillion). Across the contributory lines, the bank generated higher income from loans and advances to banks (+457.8% y/y to NGN21.54 billion), loans and advances to customers (+55.4% y/y to NGN253.95 billion), and investment securities (+88.0% y/y to NGN139.94 billion) in the review period.
Interest expense advanced by 169.5% y/y to NGN153.56 billion, as the elevated interest rate pushed the bank’s funding costs higher. For clarity, the bank incurred higher costs on its customers’ deposits (+236.1% y/y to NGN120.29 billion) as its CASA mix deteriorated to 82.4% (2023FY: 84.6%). In the same vein, the bank’s cost of borrowing increased by 69.4% to NGN32.70 billion following the increase in interest-bearing borrowings (+28.3% YTD to NGN1.63 trillion). After accounting for credit impairment charges (+727.7% y/y to NGN207.93 billion), net interest income (ex-LLE) settled lower by 66.2% y/y to NGN53.94 billion.
Expectedly, non-interest income (NII) surged by 246.1% y/y to NGN515.69 billion, as the naira devaluation drove the significant gains generated from foreign exchange revaluation of NGN355.59 billion (vs. the NGN6.25 billion loss recorded in H1-22). In addition, the FX revaluation gains and income from trading investment securities were sufficient to offset the lower income from net fees and commission (-31.8% y/y to NGN43.92 billion) in H1-23. Consequently, the impressive NII expansion, alongside the growth in net interest income (+41.7% y/y), led to an 84.6% y/y increase in operating income to NGN568.63 billion.
Operating expenses expanded by 22.8% y/y to NGN219.27 billion, triggered by the increased costs incurred on personnel expenses (+41.6% y/y to NGN56.25 billion) and NDIC insurance premium (+38.8% y/y to NGN13.58 billion) in the review period. Consequent to the faster growth in operating income relative to OPEX, the cost-to-income ratio (ex-LLE) improved, settling at 38.5% (relative to 57.9% in HY-22).
Overall, profitability came in significantly higher, as the profit-before-tax grew by 169.5% y/y to NGN350.36 billion. Likewise, PAT grew by 161.8% y/y to NGN291.73 billion despite the higher income tax expense (+215.3% y/y to NGN58.63 billion).
Comment: ZENITHBANK’s H1-23 results aligns with our expectations, with the group’s earnings positively impacted by revaluation gains following the FX devaluation in the period. We expect the bank to close the year positively, driven by the underlying impact of higher interest rates and revaluation gains in the period. Our estimates are under review.
