ZENITHBANK FY2014: Banking Against Headwinds: Resilient Growth Brightens Hope


Wednesday, March 11, 2015 10.51 AM / United Capital

Banking against headwinds: resilient growth brightens hope

· 14.8% y/y growth in gross earnings to N403.3bn (N351.5bn –FY’13), driven by 15.9% and 39.1% y/y growth in interest and non-interest income respectively.

· Profit before Tax (PBT) up by 12.8% to N119.8bn, meeting its N120bn target by management. (This is well laudable as we were not upbeat on the bank hitting the target as PBT as at Q3’14 stood at N87bn)

· Profit after Tax (PAT) stood at N99.5bn (8.6% y/y); the slowed growth in PAT compared to PBT growth was driven by a 69.9% increase in tax – well ahead of our 23% forecast.

· Overall, the result was impressive and much stronger than we expected, though we note the significant quarter-on quarter increases in OPEX and loan loss provisions. We maintain our BUY rating though we revise our estimates.

Aggressive Risk Asset Creation buoys Interest Income growth
Interest Income for FY’14 was N313.4bn – a 15.9% growth from N270.5bn in FY’13. The growth in interest income was largely driven by its aggressive risk asset creation as its loan book grew by 38.2% to N1.7trn while investment securities dipped by 34.0% to N200bn. As expected, interest income from loans and advances grew by 46.0% while income from Investment securities declined by 21.5%. The significant growth in its loan books was driven by an aggressive deposit ramp up and the US$500mn 5-year senior unsecured Eurobond which was raised in H1’14. Despite the aggressive loan growth, cost of risk moderated to 0.8% (0.9% - FY’13), reflecting the bank’s robust risk management process.

New line Items prop up non-interest income growth
Zenith non-interest income came in strongly at N90.1bn – a 39.1% increase from N64.7bn in FY’13. The growth in non-interest income was significantly driven by two (2) new line items – auction fee income and foreign withdrawal charges which stood at N3.0bn and N4.9bn respectively, accounting for 10.0% of total fees and commission income.

Impairment Charges up by 18.0% Y/Y
On the back of its aggressive growth in risk assets, the bank’s impairment charge was up by 18.0% y/y to N13.1bn (N11.1bn – FY’13). The growth in impairment charges was driven by a 35.5% growth in impairment charges on overdraft account which accounts for 83.2% of total impairment charges. We are slightly uncomfortable with the significant growth in impairment charges though we think this is related to the fall global crude oil price which has posed challenges with oil and gas players meeting up with obligations on their credit lines. We would seek clarification from management on this while we expect the bank to review its policies regarding loans to the oil and gas sector and other affected sectors to curb this trend.


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