Zenith Bank Plc: Net Interest Income Down by 3.2% QoQ in Q2 2017


Friday, August 11, 2017 10.30AM / InvestmentOne Research

Q2 2017 results highlight: Surge in loan impairment charges weighs on gains from FX trading

·         Net interest income of N68.36bn, down  -3.2% q/q; -0.7% y/y

·         Profit before tax of N47.98bn, up +8.6% q/q; +120.3% y/y

·         Profit after tax of N37.82bn, up +0.9% q/q; +325.2% y/y

Late yesterday, Zenith Bank released its Q2 2017 results, which showed a +8.6% q/q increase in PBT to N47.98bn but -8.6% lower than our estimate.

The bank’s performance was largely driven by the +198.7% q/q surge in non-interest income, which more than offset the +96.6% q/q spike in opex, N26.6bn q/q increase in loan impairment charges and the -3.2 q/q decline in net interest income.

We highlight that the loan impairment charge taken in the YTD (N42.4bn) is +31% higher than in FY 2016.

The surge in loan impairment charges could have been the result of the deterioration in asset quality. Non-performing loans (NPL) increased by +27% q/q to N99.2bn in Q2 2017, the majority of which was due to manufacturing and general commerce/trading exposures. This pushed the bank’s NPL ratio up +110bps q/q to 4.3% as at Q2 2017, slightly below the regulatory threshold of 5%.

In dissecting the numbers further, we point out that the non-interest performance was the result of the N45.9bn q/q jump in FX trading income. This does not appear to be driven by revaluation gains but may not be unconnected with the significant improvements in foreign currency liquidity following the recent shift in CBN’s FX policy.

Compared to Q2 2016, PBT spiked by +120.3% y/y due to the N70.4bn y/y surge in non-interest income, which cancelled out the N22.9bn y/y uptick in loan impairment charges and the +59.9% jump in opex.

In the near term, we believe the bank’s performance should continue to see support from the high interest rate environment, given our expectation that monetary policy may remain tight till year end. This combined with the gains from the increase in foreign currency liquidity should be a positive for earnings. However, we highlight that the continued deterioration in asset quality may remain a drag on PBT and ROE.

The company proposed a dividend of 25kobo per share representing a 1.04% dividend yield on yesterday’s close price.

While our models are under review we rate Zenith (BUY).

Related News

Zenith Bank Reports Q2 2017 Results - Loan Loss Impairments and OPEX Spiked
ZENITHBANK Declares N75.32bn PAT in Q2 2017 Results, Proposes 25 Kobo Interim Dividend (SP:N24.00k)
ZENITHBANK Declares N37.49bn PAT in Q1 2017 Results, (SP:N14.9k)
ZENITHBANK Declares N129.6bn PAT in 2016 Audited Results; Proposes N1.77k Final Dividend,(SP:N14.73)
Zenith Bank Plc to Hold Board Meeting on January 24th, 2017
Zenith Bank Plc Records Slight Strong Q3 2016 Results; Maintains Outperform Rating
ZENITHBANK Declares N100.07bn PAT in Q3 2016 Result, (SP:N14.75k)
Zenith Bank Plc Earnings Update - More Prudence as Bank Adopts New Impairment Model
ZENITHBANK Half-Year Earnings Presentation: The key takeaways
Zenith Bank Plc Earnings Miss as Loan Loss Expense Pressures PAT
Zenith Bank Plc Records Group Capital Adequacy Ratio of 19% in Q2'16
Zenith Bank Reports Q2 2016 Results; Significant FX-Related OCI Gains Boosted PAT
Zenith Bank Plc Records Group Capital Adequacy Ratio of 19% in Q2'16
ZENITHBANK Declares N44.84bn PAT in Q2 16 Result Proposes 25k Interim Dividend

Related News