Substantial Growth in Interest Income: Zenith bank delivered an EPS of NGN32.87 for FY:2024, relative to the NGN21.55 recorded in the previous year, reflecting the stellar financial performance by the bank in the review period. This was on the back of the dual effect of interest income and non-interest income.

Notably, interest income jumped by 137.74% YoY to NGN2.72trn in FY:2024, driven primarily by interest earned on loans and advances to customers (+125.91% YoY to NGN1.52trn), treasury bills (+224.04% YoY to NGN579.92bn) and bonds (+135.10% YoY to NGN440.47bn). We highlight that this mirrors the macroeconomic conditions in the domestic economy, which was mostly characterized by high interest rates across the market as the apex bank attempted to quell inflation and foreign exchange headwinds.

Following this trend, interest expense also experienced an increase, rising by 142.96% YoY to NGN992.47bn in FY:2024, stemming from higher interest paid on customer deposits (+102.77% YoY to NGN622.01bn) and borrowed funds (+270.47% YoY to NGN367.40bn). As such, net interest income amounted to NGN1.73trn in FY:2024, representing a whopping 134.85% YoY increase.

However, the 60.83% YoY rise in impairment charges to NGN658.81bn took a toll on net interest income, which settled at NGN1.07trn (+227.68% YoY) after impairment loss. Non-Interest

Income Remains Upbeat: Although income from core business constituted a bulk of gross revenue, non-interest income also contributed about 27.71% to support the bank’s revenue in FY:2024. Compared to the previous year, non-interest income expanded by 19.72%, increasing to NGN1.10trn in FY:2024, amplified by fees and commission income (+100.74% YoY to NGN356.34bn).

Furthermore, non-interest income was significantly boosted by gains on other trading books, which saw an increase of about 140.92% YoY to NGN1.12trn, reflecting the bank’s ability to exploit interest rate volatility and other trading opportunities. Overall, the expansion across major income lines took gross earnings to NGN3.97trn in FY:2024, indicating a YoY increase of 86.28%.

Earnings Growth Outweighs Elevated Cost: In 2024, Zenith bank faced increased running costs as operating expenses rose 87.63% YoY, driven by the general rise in costs amid elevated inflationary pressures. In detail, personnel expenses rose by 64.10% YoY to NGN204.17bn, mirroring prevailing economic conditions, which precipitated the need to improve employee compensation.

Elsewhere, fuel and maintenance (+145.08% YoY to NGN100.90bn), information technology (+100.32% YoY to NGN67.30bn) and AMCON levy (+60.68% YoY to NGN92.20bn) were major drivers of operating costs in the period. However, earnings growth was substantial enough to outweigh these cost pressures. As a result, pre-tax profit amounted to NGN1.33trn in FY:2024, rising by 66.70% from the previous year. Similarly, post-tax profit increased by 52.59% YoY to NGN1.03trn, as the bank surpassed the NGN1.00trn mark for bottom-line, in line with our expectations.

In terms of profitability ratios, ROE came in at 32.52%, lower than 36.57% recorded in FY:2023 due to the impact of the increase in share capital (from NGN15.70bn to NGN20.54bn) and share
premium (from NGN255.05bn to NGN594.11bn) after the capital raising exercise. Meanwhile, ROA stood at 4.10% in FY:2024, slightly below 4.15% in the prior year. The bank declared a final dividend of NGN4.00 (dividend yield of 8.79%) compared to the NGN3.50 (dividend yield of 9.06%) paid to shareholders in FY:2023.

Outlook: We envisage a persistence in earnings growth in 2025 for Zenith bank. This is based on the expectation of elevated net interest income as interest rates remain relatively high, although below levels seen in 2024. Our analysis shows a historical average growth rate of 30.00% in the loan book over the past five years. We expect this trend to continue, albeit at a less aggressive pace compared to the growth rate of 63.35% YoY in 2024.

For non-interest income, we expect the bank to continue to take advantage of the volatile yield environment, which is expected to sustain the impressive performance in trading gains. Overall, we expect the tier-one bank to churn out strong earnings in subsequent quarters; high enough to offset rising costs, which should likely slow down as inflation declines. Also, we expect the injection of fresh capital to boost performance in the medium to long term. Hence, we maintain a STRONG BUY recommendation on the ticker.

Please click here to download the full report.