FSDH Initial Reaction: Zenith Bank 3Q23 results 
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November 6, 2023/FSDH Research

Key Performance Highlights:

• Zenith Bank recorded a robust set of numbers for 3Q23, with the gross earnings jumping 67.7% YoY to N361.8 billion and the net profit climbing 126.4% YoY to N142.4 billion in 3Q23. The gross earnings were primarily driven by a 71.5% YoY growth in interest income, further supported by 50% jump in other operating income to N31.7, and a huge 289.7% growth in trading income, slightly offset by a 0.5% YoY fall in net fee and commission income.
   
• The Group’s Interest and similar income vaulted 71.5% YoY to N255.5 billion, while the Interest and similar expenses soared 100.8% YoY to N102.1 billion. The rise in interest income was primarily driven by growth in risk assets as well as effective pricing. 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 3Q23. Consequently, the net interest income rose 56.2% YoY to N153.4 billion in 3Q23, up from N98.2 billion in 3Q22. Furthermore, impairment charges were down by 82.7% YoY to N2.1 billion in 3Q23. After impairment, the group reported a net interest income of N151.3 billion in 3Q23 versus net interest income of N86.2 billion in 3Q22.
   
• In 3Q23, the Group’s net fee and commission income were slightly down by 0.5% YoY to N35.4 billion due to credit-related fees, account maintenance fees, and foreign withdrawal charges. Trading income increased substantially by 289.7% YoY to N24.4 billion in 3Q23, primarily due to significant gains on other trading books. Moreover, the Group reported other operating income of N31.7 billion in 3Q23, versus an operating income of N21.1 billion in the prior period due to higher loan recovery and gain on foreign currency revaluation. The Bank’s personnel expenses rose 48.1% YoY to N32.2 billion in 3Q23, while the operating expenses rose slightly by 3.3% YoY to N49.5 billion in 3Q23 due to higher Fuel and maintenance charges, insurance premiums, and AMCON levy. The high double-digit top-line growth, coupled with prudent cost management spurred the bottom line as the Group recorded a 113.2% YoY surge in profit before tax to N154.7 billion in 3Q23. The Group’s effective tax rate went down to 7.9% in 3Q23 from 13.3% in 3Q22, and the Company reported an after-tax profit of N142.4 billion in 3Q23, up 126.4% YoY, compared to N62.9 billion in 3Q22. Accordingly, the Group earnings per share grew to N3.29/share in 3Q23 from N2.00/share in 3Q22.
   
• The Group recorded an increase in the cost of funds by 90 bps to 2.6% in 3Q23 from 1.7% in 3Q22 due to the significant spike in interest rates. It also affected net interest margin (NIM), which reduced from 6.2% in 3Q22 to 5.6% in 3Q23. However, the Group also recorded a 49% growth in total customer deposits to N13.4 trillion in 3Q23 compared to N9.0 trillion in 4Q22. Total assets rose 48% to N18.2 trillion at the end of 3Q23 from N12.3 trillion at the end of 4Q22, mainly due to rapid growth in customer deposits. Loans and advances also grew marginally by 48% from N4.1 trillion in 4Q22 to N6.1 trillion, partly due to the revaluation of foreign currency denominated loans and growth in local currency loans. This was achieved at a moderate NPL ratio of 3.8% (4Q22: 4.3%). The capital adequacy ratio improved marginally to 20.1% in 3Q23 from 19.1% in 3Q22, while the liquidity ratio came in at 68.0% in 3Q23 from 75% in 3Q22. 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 3Q23 results was subdued as the stock declined 1.04% to N33.15 versus a 1.65% gain for the All-Share Index on 31/10.

Zenith Bank Earnings Highlight 3Q23

Source: Company Financials, FSDH