Zenith leads common year end compliance



Zenith Bank became the first quoted Nigerian bank to publish its December 2009 results, by announcing its audited results for the 15 month period ended December 31, 2009.



The bank is also the first of the 24 banks to release its common year end books. The publications of the books are expected to show the exact health of the banks. The Central Bank is expected to go through these books and check compliance to international financial reporting standards, before they are finally approved for public consumption.



Most awaited results


The release on Monday of one of the most awaited common year end results in the banking sector after the Central Bank of Nigeria's special audit last year, draws the attention of finance experts.



Renaissance Capital, a finance and research firm, said given the operating environment, it views the result as satisfactory. Kato Mukuru, Director, Head of African Research, Equity Research, said the figures published are in summary form only and as such, the firm's comments will be limited to the big picture.



"For the 15 months to December, its profits before tax (PBT) was N35billion versus our estimate of N36billion. The reported profit after Tax (PAT) over this period was N21billion versus our forecast of N27billion, but this is probably explained by one-off taxes. Additionally, we highlighted that the group announced a proposed dividend of N0.45 per share and a one for four (1 for 4) bonus issue. We were forecasting a dividend of N0.54 per share." In a further breakdown of the results, RenCap noted three big positives - a strong top-line growth on higher margins, strong growth in risk assets, and the maintenance of a solid capital position.



"Gross revenues of N277.3billion came in 11 percent ahead of our forecasts and were up 31 percent year on year on a like-for-like basis. Notably, group net interest income (NII) was up 28 percent since Financial Year 08 and since assets over the period were down seven percent, we believe that margins must have improved notably over the period."





In a detailed analysis of the bank's report made available to NEXT, Mr. Mukuru noted that the Zenith's net loans as at December 2009, was N698billion up 57 percent from the 2008 levels and eight percent ahead of forecasts.



"Although the CBN's requirement to bring Commercial Papers (CPs) and Bankers Acceptance (BAs) on-balance sheet would have contributed significantly to this growth, the improved leverage of the Zenith Balance sheet is very encouraging.



"Although Zenith's December 2009 Capital Adequacy Ratio (CAR) (29 percent) is below its September 2009 levels (36 percent), it remains well above the regulatory minimum of 10 percent. Additionally, we would note that Zenith Bank continues to be ranked as one of the most liquid banks, with a liquidity ratio of 57 percent, more than double the minimum requirement of 25 percent," Mr. Mukuru said.



Concerns remain


Mr. Mukuru noted that provisions in the bank's books were higher in past quarter, which was rather disappointing. "As presented today, it would appear that its exceptional provisions increased to N40billion at December 2009 (from N26billion in September). Although we did expect to see more market-related provisions on the back of the weaker markets, we were also hoping to see some recoveries in this quarter. Although this is mildly disappointing, we note that the group's Non Performing Loan (NPL) ratio only increased to six percent in December (from four percent in September).



"On the back of these results, we would like to hear a clear message from the management with regard to their earnings outlook and provisions in tomorrow's conference call. We reaffirm our target price of N26 per share on the back of the very strong top-line growth; which, if added to stable costs and significantly lower provisions in 2010, should result in strong profit recovery," he said.



Management's response


Jim Ovia, the outgoing Group Managing Director and Chief Executive of Zenith Bank, in a statement made available to NEXT, said he is delighted that the bank produced this resilient result in very challenging times. "We remain vigilant on asset quality, and pride ourselves on our risk management infrastructure, as we do on our continued drive to reduce costs and our resilient capital position, one of the strongest in the industry," he said.



Godwin Emefiele, group chief executive designate and currently Deputy Managing Director, Investment Management and Stockbroking, said "the global economic and financial downturn experienced over the period had a negative impact on performance as a whole, and this translated to a 40 percent decline in the total revenue for the division through reduced activity in the capital markets of our existing clients." He added, "However, in absolute terms, our number of clients did not reduce and this will be key to us in regaining a leading position as the markets recover. We have set a target to grow our gross earnings back to 2008 levels by continuing to reduce our overall cost of funds. Business development in investment banking, insurance and registrar mandates are identified areas for growth."



Peter Amangbo, Executive Director of Corporate and Retail Banking, also said the strategy in going forward is to continue its branch expansion programme on a cautious note, which will increase the bank's footprints across Nigeria, and leverage on the drive to mop up cheap deposits and channel the funds to large corporate clients, while striving to increase the value add of services to clients.



Future growth


RenCap believes that strong capitalisation combined with low leverage is key to the bank's successful navigation of the financial crisis. Capital adequacy stands at 29 percent and the bank maintains one of the largest capital reserves in the industry at N335 billion, as such deemed more than adequate to support future expansions as well as business risks and contingencies.



The group's loan to deposit ratio of 59 percent is well within the regulatory guideline of 80 percent; likewise its liquidity ratio of 57 percent and capital adequacy ratio of 29 percent, are well above the regulatory requirements of 25 percent and 10 percent respectively.


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