October 12, 2026/InvestmentOne Report
Zenith bank saw a slowdown in gross earnings in the first half of 2026, according to the recently released financial report by the bank. Gross earnings contracted by 24.63% to NGN1.89trn, driven by the drag in core business income and the sharp fall in non-interest income in the period. Accordingly, interest income declined by 8.87% YoY to NGN1.68trn in H1:2026 due to lower interest earned on bank placements (-40.32% YoY), treasury bills (-22.29% YoY) and bonds (-3.10% YoY). This reflects the overall decline in interest rates from the same period in 2025, following the consistent moderation in inflation figures in the domestic economy. Additionally, the sluggish growth (1.08% YoY to NGN945.85bn) in interest on loans and advances also weighed on core business income.
Meanwhile, interest expense decreased by 12.95% YoY to NGN421.80bn mainly on the back of the 75.43% YoY fall in interest incurred on borrowed funds to NGN32.52bn. This stemmed from the significant reduction in borrowings to NGN11.13bn from NGN651.16bn in H1:2025 amid repayments of outstanding interest-bearing borrowings. As a result, net interest income came in at NGN1.25trn, 7.41% YoY lower than the previous year.
Non-Interest Revenue Slumps Amid Trading Loss: Non-interest revenue slumped by 67.16% YoY to NGN223.82bn in H1:2026, driven by trading loss of NGN92.24bn, compared to NGN467.79bn gain in the same period in 2025. This can be attributed to the NGN171.25bn loss on other trading books, which emanated from realized FX trading loss of about NGN284.90bn amid Naira appreciation over the period.
However, unrealized gains on derivatives of NGN110.60bn cushioned the effect of the FX loss recorded. On the bright side, other operating income jumped by 314.26% YoY to NGN71.63bn, while fee and commission income expanded by 24.44% YoY to NGN244.44bn supported by credit related fees (+80.03% YoY), financial guarantee contracts issued (+23.82% YoY) and fees on electronic products (+41.55% YoY) amongst others.
Earnings Shrink Despite Minimal Cost Pressure: In H1:2026, impairment charge on financial instruments plummeted by 81.48% YoY to NGN141.12bn due to the decline in impairment on loans and advances to NGN129.36bn from NGN791.20bn in H1:2025. This follows the end to the regulatory forbearance regime by the central bank, which led to a spike in loan impairment in 2025.
Meanwhile, operating expenses saw a modest 9.00% rise YoY to NGN633.76bn, driven by higher personnel expenses (+2.89% YoY). Other operating expenses also rose on the back of the increases in information technology (+52.16% YoY), fuel & maintenance (+27.53% YoY) and travel & hotel expenses (+79.84% YoY). PBT increased slightly by 1.91% YoY to NGN637.60bn, as the decline in impairment charges offset the contraction in major income lines.
However, PAT declined by 19.06% YoY to NGN430.76bn following the 121.34% YoY jump in income tax, taking the effective tax rate to 32.44% from 14.94% in the previous year. This jump was propelled by prior period under-provision (NGN89.88bn vs NGN22.89bn in H1:2025), an aftermath of the implementation of the Nigeria Tax Act 2025, which became effective in January 2026.
Consequently, EPS declined to NGN10.48 from NGN12.95, while ROE and ROA also fell to 9.11% and 1.35%, (vs. 13.71% and 1.82% in H1:2025), respectively. Despite the contraction in earnings, the bank declared an interim dividend of NGN1.50 (dividend yield of 1.11%) as against the NGN1.25 (dividend yield of 1.87%) paid to shareholders in H1’2025.
Our outlook for Zenith Bank remains positive based on the expectation for earnings to close the year on a strong footing c. NGN1.10trn. We expect this to be driven by a recovery in core business income, aided by improving asset quality and further loan growth by year-end.
Although non-interest income has been under threat from dwindling trading income, we expect fees and commission income to provide support through transaction-based income across electronic banking channels. However, we see weaker loan growth, which could derail interest income in the face of falling interest rates, as a downside risk for earnings. Consequently, we hold an OVERWEIGHT recommendation on the ticker.
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