October 31, 2023/Cordros Report
Zenith Bank Plc (ZENITHBANK) released its 9M-23 unaudited financial statements after the close of business yesterday (30 October), which showed that the bank delivered a 149.0% y/y rise in EPS for the period under review to NGN13.82 (vs 9M-22: NGN5.55). This impressive growth in the Holdco’s earnings was driven by the expansion across its funded (+71.7% y/y) and non-funded (+186.4% y/y) income lines.
Interest income advanced by 71.7% y/y to NGN607.93 billion in 9M-23, mirroring elevated interest rates in the debt market. According to the contributory lines (in nominal terms), the bank generated higher income from loans and advances to customers (+56.4% y/y to NGN408.66 billion), investment securities (+76.1% y/y to NGN216.49 billion), and loans and advances to banks (+600.6% y/y to NGN45.79 million) in the review period.
The bank’s interest expense increased further by 137.1% y/y to NGN255.70 billion, primarily driven by the higher cost expensed on customer deposits (+207.0% y/y to NGN187.21 billion) amid the slight improvement in CASA mix (86.9% in 9M-23 | FY-22: 84.6%). Likewise, costs of borrowings (+51.6% y/y to NGN67.62 billion) came in higher in the period under review, following the accretion in the group’s interest-bearing borrowing (+68.6% YTD to NGN2.15 trillion). Accordingly, the bank recorded a 46.8% y/y increase in net interest income. However, the net Interest income (ex-LLE) settled lower by 16.5% y/y to 205.23 billion due to the higher loan impairments (+466.1% y/y) charges taken in the period.
Further in, the bank reported a 186.4% y/y increase in its non-interest income to NGN607.16 billion, majorly driven by the FX revaluation gains recorded in Q2-23 (NGN355.59 billion) vs Q3-23 (NGN22.53 billion | 9M-23: NGN378.12 billion). The preceding, coupled with the income generated from investment securities trading (+39.3% y/y to NGN127.38 billion), offset the impact of the lower income from net fees and commission (-20.7% y/y to NGN79.34 billion).
Operating expenses increased by 20.4% y/y to NGN307.35 billion, following the higher costs incurred on personnel expenses (+43.9% y/y to NGN88.43 billion) and regulatory fees – deposit insurance premium (+39.7% y/y to NGN20.49 billion) and AMCON levy (+30.4% y/y to NGN57.38 billion) – in 9M-23. Given that operating income (+77.5% y/y) grew faster than OPEX, the group’s operational efficiency improved as its cost-to-income ratio (ex-LLE) settled at 37.8% (9M-22: 55.8%).
Overall, the bank’s profit before tax settled higher by 149.3% y/y to NGN505.04 billion. Similarly, PAT grew by 149.1% y/y to NGN434.17 billion after accounting for income tax expenses (NGN70.86 billion).
Comment: ZENITHBANK’s 9M-23 numbers align with our expectations. We like the bank’s positive traction in growing its core banking activities. For 2023E, we expect the bank to close the year positively, driven by improved interest-earning assets, higher yields in the fixed-income market, and strong non-funded income growth. Our estimates are under review.
