April 9, 2024/CSL Research

Zenith Bank’s FY 2023 audited numbers showed a strong 111.9% y/y growth in Interest Income driven by growth in Interest Income on both Net Loans and Investment Securities. Net Loans to Customers grew 63.4% in 2023 full year compared with FY 2022 inclusive of the impact of devaluation on foreign currency loans. Interest Expense also grew strongly, up 135.4% y/y resulting in an uptick in funding costs. Customer Deposits were up 69.0% in December 2023 compared with December 2022 (inclusive of the impact of devaluation). Overall, Net Interest Income grew 100.8% y/y, 29.4% ahead of our forecast.

Net Fee and Commission Income declined, down 17.7%y/y. The y/y decline was due to a significant increase in Fee and Commission Expense (up 179.3%) as Total Fee and Commission Income was up 12.9% y/y.

ZENITH BANK FY 2O23

Source: Company’s Financials, CSL Research

Other Income (Trading gains and Other Operating Income) grew significantly, up 226.2% y/y to N809.6bn from N248.2bn in FY 2022 and 28.7% ahead of our forecast, mainly driven by significant gains on other trading books to N463.4bn compared with a loss of N1.3bn in FY 2022. The bank also reported foreign currency revaluation gains of N228.98bn in FY 2023 compared with only N25.2bn in FY 2022.

Impairment charge grew significantly, up 232.3% y/y to N409.6bn in FY 2023 from N123.3bn in FY 2022, bringing FY 2023 Cost of Risk (COR) to 7.3% compared with 3.2% for FY 2022 and our FY 2023 estimate of 4.8%. We attribute this to the impact of the devaluation on FCY impairments and possibly prudent provisioning, taking advantage of significant FX gains.

OPEX grew 32.3% y/y mainly driven by growth in personnel expenses which we attribute to cost of living adjustments to salaries and growth in expense items such as outsourcing services, fuel, and maintenance (subsidy removal) and AMCON levy (growth in balance sheet size). However, the lower y/y growth in Opex when compared with 121.4% y/y growth in Total Operating Income led to a strong improvement in Cost to Income Ratio (ex-provisions) to 27.2% for FY 2023 compared with 45.4% for FY 2023. OPEX came in 8.8% higher than our forecast.

Overall, PBT grew strongly, up 179.6% y/y to N796.0bn for FY 2023 from N284.7bn in FY 2022 while Net Profit grew 202.3% y/y to N676.9bn bringing FY 2023 ROAE to 36.6% compared with 16.9% for FY 2022 and our FY 2023 estimate of 34.1%.

We have a Buy recommendation on the stock with a target price target of N56.77/s. Current Price N41.55/s.

The bank’s management proposed a final dividend of N3.50/s (Interim N0.50/s) bringing the total FY 2023 dividend to N4.00/s and implying a dividend yield of 9.6% based on the current price of N41.55/s.

Kindly click on the below link to download the full report.

​CSL Zenith Bank FY 2023 Quick Take.pdf​​​