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Saturday, September 12, 2020/ 09:00PM/ by TheAnalyst /Image Credit: Ecographics
Leaning
against coronavirus-induced headwinds in H1 2020, Zenith Bank
recorded a solid performance, maintaining status as the most profitable bank in
Nigeria listed on the Nigerian Stock Exchange (NSE). It posted modest growth in
PBT of +2.2%, gross earnings of +4.38%, but saw a leap in shareholder's funds of +20.68%.
Highlights
Upward Drifting Earnings...But Only Just
Gross Earnings
Zenith's
Bank gross earnings rose by +4.38% in H1 2020 Y-o-Y.
Its gross earnings increased from N331.59bn in H1 2019 to N331.59bn in H1 2020
(see Chart 1 below).
Chart 1: Zenith Bank's Gross Earnings (N'bn)
Source: Proshare Research, Zenith Bank Financial Statement
Profit
Zenith
Bank's profit before tax (PBT) grew by +2.18% Y-o-Y
in H1 2020. Its profit increased from N111.68bn in H1 2019 to N114.12bn in H1
2020. The growth in PBT was significantly driven by growth in net interest
income (NII) which grew by +10.5% Y-o-Y and
non-interest income which grew by +6% Y-o-Y in H1
2020. Despite a +74.18% growth in the
bank's impairment charge, Zenith Bank was able to post an increase in its PBT (see
Chart 2 below).
Chart 2: Zenith Bank's PBT (N'bn)
Source: Proshare Research, Zenith Bank Financial Statement
Loans and Deposits; of Lights and Tunnels
Deposits
from Customers
Zenith Bank's deposit from customers maintained its upward momentum in H1 2020. Its deposits from customers rose by +28.61% in H1 2020 Y-o-Y. Its deposits from customers rose from N3.81trn in H1 2019 to N4.9trn in H1 2020. Despite the adverse effect of the coronavirus, Zenith Bank recorded a significant rise in customer deposits in H1 2020, possibly a reflection of increased confidence in the bank's operating stability and the reduction in consumption as the economy shrank and savings increased (see Chart 3 below).
Chart 3: Deposits from Customers (N'bn)
Source: Proshare Research, Zenith Bank Financial Statement
Gross Loans and
Advances
The bank's gross
loans and advances increased by +43.59% Y-o-Y in H1 2020. It increased
from N1.95trn in H1 2019 to N2.8trn in H1 2020 (see Chart 4 below). The rise in loans and advances
was consistent with growth in customer deposits but what was slightly queer was
that the loan increase was occurring at a time of a COVID-19 lockdown leaving
analysts wondering what type of loan assets Zenith Bank created in an economy
that saw a Q1 2020 GDP growth rate of +1.87% and a Q2 2020 GDP growth of -6.10%. No breakdown of the sectoral distribution of the bank's loans and
advances was provided in its H1 2020 financials, but between Q1 and Q2 2020,
the oil & gas sector was under pressure so as the energy sector, meaning
that these leading economic activities were stunted over the period. Analysts
noted that even the retail sector was down and under as consumption gave in to
lockdown protocols making the banks lending even more impressive. However, a
caveat to the loan story is that with a frog leap in lending, the bank may
equally see its NPLs rise in coming quarters as loan repayment becomes
difficult in an unfurling economic recession in Q3 and Q4 2020. Nevertheless,
the growth in the bank's loan portfolio may suggest flickering light at the end
of a short but dark economic tunnel between Q2 and Q4 2020.
Chart 4: Loans and Advances (N'bn)
Source: Proshare Research, Zenith Bank Financial Statement
Shareholder's Fund
Zenith's
shareholder's fund rose by +20.68% Y-o-Y in H1 2020. Its
shareholder's funds increased from N819.51bn in H1 2019 to N989bn in H1 2020.
The increase in shareholder's fund was a signal that the bank was bumping up
its retained earnings (rose +1.75% between H1 2019 and H1 2020) and
gradually building other reserves (see Chart 5 below).
Chart 5: Shareholder's Fund (N'bn)
Source: Proshare Research, Zenith Bank Financial Statement
Rising Cost; Adapting to A New Normal
Cost-to-income Ratio
(%)
The deposit money
lender's cost-to-income ratio (CIR) increased slightly in H1 2020. Its
cost-to-income ratio rose from 53.2% in H1 2019 to 54.3% in H1 2020. The increase could be attributed to
inflationary pressures and the Group's generally conservative approach to
impairment charges in the current elevated risk environment, The bank's CIR is
one of the best-in-class for tier1 lenders in the country and reflects an
impressive approach to cost containment despite rising domestic inflation rates
(domestic inflation was 12.82% in July 2020) (see Chart 6 below).
Chart 6: Cost-to-income Ratio (%)
Source: Proshare Research, Zenith Bank Financial Statement
NPL Ratio - Mitigating Credit Risk
NPL Ratio (%)
Zenith
Bank's NPL ratio declined to 4.7% in H1 2020. Its NPL declined from 5.3% in
H1 2019 to 4.7% in H1 2020. To cushion its loan books from credit risk that
might arise as a result of the COVID-19 pandemic, Zenith Bank, according to its
managers, embarked on different strategies such as engaging customers in key
sectors of the economy to better understand their challenges and provide
effective and bespoke actions to alleviate their hardships while preserving
shareholders' funds, deployment of tools and models to recalibrate and measure
the impact of COVID-19 on loan books. The improvement of the quality of the
bank's risk assets may prove short-lived if it does not place a tight noose
around its newly created loans as a short-term recession in 2020 could
compromise loan repayments (see Chart 7 below).
Chart 7: NPL Ratio (%)
Source: Proshare Research, Zenith Bank Financial Statement
Zenith Bank Strategy & Outlook
Zenith Bank
emphasized its commitment towards growth and sustainability by outlining its
strategy for growth and identifying growth sectors with a competitive advantage
(see Illustrations 1 & 2 below).
Illustration 1: Strategies for Driving Vision
The strategy of redefining and re-addressing the customer's transaction journey is intelligent but it may require a heavier dependence on cutting-edge technology that does not come cheap. The bank has identified what it considers as growth sectors, but the sectors identified are traditional and could be subject to major disruptions as technology buffs try to address the challenges of the sectors by reshaping their broad operations and revisioning the industries entirely. The COVID-19 reality has put a new spin on what can be accomplished outside the perimeters of old production and service frameworks.
Illustration 2: Driving Profitability with Competitive Advantages
This
emerging change comes with volatility, uncertainty, complexity and ambiguity,
Zenith will need to touch base with more than simple outlooks to evolving
business expectations and difficulties if it is going to stay ahead of the
competition. But so far the bank appears
to have done a decent job.
Related News
1. Zenith
Bank Q2 2020 Results Review: Compelling Valuation at Current Levels
2. ZENITHBANK Declares N103.8bn PAT in
H1 2020 Audited Results; Proposes 30K Interim Div, (SP:N16.95k)
3. Zenith Bank GMD Calls for Concerted
Efforts to Expand Non-Oil Exports
4. Moody's Announces Completion of a
Periodic Review of Ratings of Zenith Bank Plc
5. Zenith Bank Emerges Best Bank in
Nigeria in the Global Finance World's Best Banks Awards 2020
6. Zenith Bank Is Maintaining Outperform
Rating in Q1 2020
7. Zenith Bank Introduces Automated
Voice Banking Services
8. Zenith Bank Shareholders Approve
Dividend Payout of N87.9bn
9. Zenith Bank Share Price Hits N10.85k;
Lost N249.60bn In Market CAP, -42.29% Wtd
10. Zenith Bank Retain Position as
Nigerian's most Valuable Banking Brand
11. ZENITHBANK Declares N50.5bn PAT in Q1
2020 Results, (SP:N14.85k)
12. ZENITHBANK
Notifies of Board Meeting and Closed Period for Q1 2020...
13. Zenith Bank Introduces Automated
Voice Banking Services...
14.
Banking Stocks: ZENITHBANK Records
24.42% Gain One Week After As UBA Dips By -10.71%
15. ZENITHBANK Announces Resolutions
Passed At Its Annual General Meeting
16. ZENITHBANK and UBN Both Refute Media
Reports Suggesting a Proposed Acquisition
17. ZENITHBANK Declares N208bn PAT in
2019 Audited Results; Proposes N2.50k Final Div. (SP:N19.40K)
18. ZENITHBANK Notifies of Board Meeting;
To Consider And Approve Financials For FYE December 31st, 2019
19. ZENITHBANK Notifies of Board Meeting;
To Consider And Approve Financials For FYE December 31st, 2019
20. ZENITHBANK Declares N150.72 bln PAT
in Q3 2019 Results (SP:17.25k)
21. ZENITHBANK Notifies of Board Meeting
For Consideration And Approval of Q3 2019 Financial Statements