ZENITHBANK Half-Year Earnings Presentation: The key takeaways

Proshare

Friday, August 12, 2016 5:22 PM / Research

The macroeconomic challenges that influenced business outlook in 2015 financial year are yet to abate in 2016. Banks have witnessed growing headwinds and tougher operating environment in the current year.


The slow economic activities, low global oil price, shortage of FX, technical devaluation of currency  with attendant impacts on NPL, eventual floating of Naira, increase in MPR by 200bpts to 14% in the face of growing inflation and negative GDP growth; have all impacted and are still affecting both  top-line and bottom-line of the banks.

As a result of these mounting challenges, Zenith Bank Plc posted unimpressive performance, with 6.23% and 15.68% decline in both top-line and bottom-line respectively. The bottom-line performance was impacted by 13% growth in impairment charges with corresponding weak performance in non-interest income, which closed lower by 37%- this was largely attributed to the difficult operating environment driven by volatility in both oil and FX markets.


Also, the risk assets quality sheds some weight as NPL ratio moved up to close at 2.3% against 1.4% posted in previous year comparable period- Though, the NPL ratio is still relatively impressive below regulatory benchmark of 5% - this further resonates healthy risk management and assets quality.

In a similar fashion, the operating efficiency and cost management came in weaker despite 14% (yoy) decline in interest expenses.  The cost-to-income ratio closed higher at 56.7% against 54.4% recorded in the previous comparable period on the back of weakness in non-interest income for the period.

Summarily, below are the key takeaways from the Half-year 2016 presentation as presented by the management of the bank;

 

         Weak oil prices and illiquidity of the FX market impacted the non-interest income substantially

         Decline in yield assets weakens net interest margin

         State bailout loans increased exposure to public sector

         State-bailout loans are performing; payments are made from source

         Oil & Gas loans are restructured and adequately provisioned

         Additional provisions were made in Oil & Gas and Power sectors

         Exposure to Oil & Gas and currency devaluation had no adverse effect on capital adequacy ratio of the bank

         Dollar liquidity remains very strong and comfortable towards dollar obligations

         Additional provisions were made for FX loan portfolios

         NPL growth largely driven by devaluation and additional provisions made to prevent eventuality

         No NPL write-off yet

        Capital adequacy remains immune against devaluation shocks

         SEPLAT loans are doing well and performing in both short and mid-long term

 

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