May 6, 2024/Cordros Report

Zenith Bank Plc (ZENITHBANK) published its Q1-24 unaudited financial report last Friday, revealing a significant increase in gross earnings (+189.1% y/y) and net profit (+291.4% y/y) during the period. As a result, the bank’s EPS in Q1-24 settled at NGN8.22 (+291.4% y/y vs NGN2.10 in Q1-23) driven mainly by core income (+154.9% y/y) expansion, while non-core income (+273.3% y/y) also printed higher.

Interest income surged by 154.9% y/y to NGN488.55 billion, underpinned by the higher income from loans and advances to customers (+142.6% y/y) and investment securities (+142.6% y/y). We attribute the growth in interest income to the increase in the bank’s earnings assets (+86.5% y/y to NGN18.50 trillion) amid the elevated interest rate environment and yields in the fixed-income market.

Sequentially, the bank’s interest expense rose by 157.0% y/y to NGN182.10 billion, despite the 175bps moderation in the bank’s cost-of-funding (CoF) to 0.9% (Q1-23: 2.7%). During the period, ZENITHBANK incurred higher interest costs across deposits from customers (+187.1% y/y) and other borrowings (+102.8% y/y), reflecting the higher interest rate environment. Accordingly, net interest income settled higher by 273.3% y/y at NGN271.57 billion. Eventually, the bank’s net interest income (ex-LLE) expanded by 121.5% y/y to NGN250.48 billion, after accounting for a higher credit impairment charge (+624.1% y/y).

Similarly, ZENITHBANK’s non-interest income (NII) spiked by 273.3% y/y to NGN271.57 billion in Q1-24. We attribute the growth in NII mainly to the expansions in net gains on investment securities (+521.7% y/y) amid a rise in net fees and commissions income (+69.0% y/y) and FX revaluation gains (+176.9% y/y). This expansion in NII, alongside the growth in net interest income, led to a 181.0% y/y increase in operating income to NGN522.05 billion.

Further down, operating expenses grew by 103.5% y/y to NGN201.85 billion, with the most pressure exerted by NDIC premium (+604.8% y/y), personnel expenses (+85.0% y/y), licenses, registrations, and subscriptions (+932.7% y/y) and fuel and maintenance charges (+198.4% y/y). Elsewhere, we highlight that the bank’s AMCON levy (-70.4% y/y) declined in the period under review. Consequent to the bank’s operating income growing faster than OPEX, the bank’s cost-to-income ratio (ex-LLE) improved to 38.7% (Q1-23: 53.4%).

All in, profit-before-tax increased by 269.7% y/y to NGN320.19 billion with income tax charge in the period advancing by 200.4% y/y. Subsequently, ZENITHBANK’s PAT settled 291.4% y/y higher to NGN258.34 billion.

Comment: ZENITHBANK recorded remarkable performance in its funded income lines as trading gains drove non-funded income growth. Looking ahead in the year, we highlight that shareholders unanimously approving the bank to restructure into a holding company (Zenith Bank Holding Company Plc) on 26 April, poses significant upsides as the group can now diverge into evolving opportunities in the fintech space while strengthening its digital and retail footprint to drive profits for the banking subsidiary. Our estimates are under review.