Zenith Bank Q1 2021 Unaudited Results: Significant Improvement in Liquidity Position


Wednesday, May 12, 2021, / 08:00 AM / By Adaeze Nwachukwu, Proshare Research   / Header Image Credit: Zenith Bank

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The Q1 2021 financial result of Zenith Bank showed a decline in top-line earnings and a marginal improvement in the lender's bottom-line. However, the result also showed a noticeable improvement in its liquidity. The group's non-performing loan (NPL) ratio was within the regulatory threshold while the capital adequacy ratio (CAR) and loan-to-deposit ratio (LDR) were below minimum regulatory requirements.


Analysts note that the impact of the devaluation of the domestic currency affected the banking group adversely in US dollar terms. Using the I & E FX window rate of exchange between the US dollar and Naira showed a fall in operating performance.

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Key Highlights/Takeaways

  • Gross earnings dipped year-on-year (Y-o-Y) by -5.70%, from N166.81bn in Q1 2020 to N157.31bn in Q1 2021. (declined by -19.16% in USD terms to US$412.88m in Q1 2021)
  • Profit before tax grew Y-o-Y by +3.80% from N58.79bn in Q1 2020 to N61.02bn in Q1 2021 (fell by -11.01% in USD terms to US$160.16m in Q1 2021)
  • Profit after tax up by +5.02% Y-o-Y from N50.53bn in Q1 2020 to N53.06bn in Q1 2021 (fell by -9.97% in USD terms to US$139.27m in Q1 2021).
  • Impairment charges improved marginally by -2.43% in Q1 2021 to N3.86bn from N3.95bn in Q1 2020 (declined by -16.35% in USD terms to US$10.12m in Q1 2021).
  • Earnings per share grew by +4.97% in Q1 2021 from N1.61k in Q1 2020 to N1.69k.
  • Total loans up Y-o-Y by +8.92% in Q1 2021 from N2.74trn in Q1 2020 to N2.98trn in Q1 2021 (fell by -6.62% in USD terms to US$7.83bn in Q1 2021)
  • Customer deposits increased by +27.16% from N4.46trn in Q1 2020 to N5.67trn in Q1 2021 (up by +9.01% in USD terms to US$14.89bn in Q1 2021).
  • Total assets grew Y-o-Y by +21.81% in Q1 2021 from N7.13trn in Q1 2020 to N8.68trn (up by +4.43% in USD terms to US$22.79bn in Q1 2021).
  • Shareholder's fund increased by +17.92% from N925.94bn in Q1 2020 to N1.09trn (up marginally by +1.09% in USD terms to US$2.87bn to Q1 2021).
  • Return on average equity (ROAE) declined in Q1 2021 to 19.20% from 21.60% in Q1 2020.
  • Return on average assets (ROAA) also fell in Q1 2021 to 2.50% from 3.0% in Q1 2020.
  • The cost-to-income ratio up marginally to 53.20% in Q1 2021 from 52.70% in Q1 2020.
  • Liquidity ratio improved significantly by +67.46% from 41.80% in Q1 2020 to 70.0% in Q1 2021.
  • The loan-to-deposit ratio fell from 61.40%in Q1 2020 to 52.60% in Q1 2021.
  • The capital adequacy ratio increased from 19.60% in Q1 2020 to 21.10% in Q1 2021.
  • The non-performing loans ratio improved in Q1 2021 to 4.20% from 4.60% in Q1 2020.

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Share Price Movement-Skidding Down Hill

The year-to-date (YTD) share price movement of Zenith bank has reflected the volatility of associated economic activities and investor sentiment towards the bank.


As of 4th May 2021, the share price of the bank declined by -10.28% with the lowest values seen between March and April 2021 while the price was at its highest in February 2021.


The fall in share price could be as attributed to profit-taking by shareholders after dividend was paid in March (see chart 1 below).


Chart 1: Zenith Bank's YTD Share Price Movement (as of 4th May 2021)

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Source: NGX, Proshare Markets

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Profitability, Looking Down Modestly

Zenith Bank's gross earnings for Q1 2021 declined slightly by -5.70% to N157.31bn from N166.81bn in the same period of the previous year.


There was a marginal increase in net interest income, it grew Y-o-Y by +2.05% while non-interest grew by +9.78% in Q1 2021. Growth in non-interest income was supported by a +103.51% significant increase in net fee and commission income.


In US dollar terms, gross earnings had a higher percentage decline as a result of the devaluation of the Naira during the period. Gross earnings declined Y-o-Y by -19.16% from US$510.71m in Q1 2020 to US$412.88m in Q1 2021 (see chart 2 below).


Chart 2: Zenith Bank's Gross Earnings Q1 2017 - Q1 2021 (N'bn)

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Source: Zenith Bank's Financial Statement, Proshare Research


The group's PBT has trended upwards with Q1 2021 recording the highest first quarter results in the last five years. PBT grew slightly by +3.80% Y-o-Y from N58.79bn in Q1 2020 to N61.02bn in Q1 2021.


Converting to US dollars, the marginal growth recorded in Naira terms was reversed. PBT declined Y-o-Y by -11.01% from US$179.98m in Q1 2020 to US$160.16m in Q1 2021 (see chart 3 below).


Chart 3: Zenith Bank's Profit Before Tax Q1 2017 - Q1 2021 (N'bn)

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Source: Zenith Bank's Financial Statement, Proshare Research


Impairment Charges-Looking A Bit Better

Q1 2021 unaudited result showed a marginal improvement in impairment charges, charges declined Y-o-Y by -2.43% from N3.95bn in Q1 2020 to N3.86bn in Q1 2021.


Q1 2019 saw the lowest impairment charge of N2.09bn while Q1 2017 recorded the highest impairment charge on loans over the last half decade (see chart 4 below).


Chart 4: Zenith Bank's Impairment Charges Q1 2017 - Q1 2021 (N'bn)

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Source: Zenith Bank's Financial Statement, Proshare Research


Asset Base; Working the Hydraulic Pump

The total asset of the Tier 1 bank over the last five years saw an upward bounce. The most recent figures show that total assets grew by +21.81% Y-o-Y to N8.68trn from N7.13trn in Q1 2020.


The growth in total assets was attributable to a Y-o-Y increase in cash and balances with central banks, treasury bills, and investment securities. Cash and balances with central banks grew by +38.00%, treasury bills grew significantly by +99.65% while investment securities increased by +67.83% (see chart 5 below).


In US Dollar terms total assets had a lower percentage growth, it grew by +4.43% Y-o-Y from US$ 21.82bn in Q1 2020 to US$ 22.79bn in Q1 2021.


Chart 5: Zenith Bank's Total Assets Q1 2017 - Q1 2021 (N'trn)

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Source: Zenith Bank's Financial Statement, Proshare Research

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Non-Performing Loans (NPLs)-Steady as She Goes

The lender's NPL ratio remained below the CBN's regulatory threshold of 5% in Q1 2021. NPL slid from 4.60% in Q1 2020 to 4.20% in Q1 2021.


The highest recent NPL ratio for Zenith was in 2019 (4.85%) while Q1 2017 saw the lowest NPL ratio of 3.20% (see chart 6 below).


Chart 6: Zenith Bank's Non-Performing Loan Ratio Q1 2017 - Q1 2021

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Source: Zenith Bank's Financial Statement, Proshare Research


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Shareholder's Fund-A Tasty Sushi

In 2020, Zenith Bank's shareholders' fund hit N1trn making it the largest Nigerian bank listed on the Nigerian Exchange (NGX) by shareholders' fund.


In Q1 2021, the shareholder's fund increased Y-o-Y by +17.92% from N925.94bn in Q1 2020 to N1.09trn in Q1 2021. Retained earnings and other reserves segment grew Y-o-Y by +30.69% and +18.15% which supported the growth in shareholders' fund.


Shareholder's fund had a lower percentage growth in US dollar terms, it grew marginally by +1.09% from US$2.83bn in Q1 2020 to US$2.87bn in Q1 2021 (see chart 7 below).  


Chart 7: Zenith Bank's Total Shareholders Fund Q1 2017 - Q1 2021 (N'bn)

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Source: Zenith Bank's Financial Statement, Proshare Research


The Q1 2021 unaudited result showed marginal improvement in bottom-line earnings despite the difficult operating realities of a slowing economy and rising local insecurity. The prudential ratios of the bank were better than the regulatory minimums excluding the loan-to-deposit ratio (LDR) which was 52.60% which was below CBN's required minimum of 65%.


Investor returns recorded a decline partly because of a rise in total assets and shareholder's fund. ROAE declined by -11.11% to 19.20% while ROAA declined by -16.67% to 2.50%.


Zenith Bank's figures are expected to improve as the domestic and global economy recovers from the downturn experienced in 2020. However, this would be the result of mixed factors especially the continuous rise in crude oil price.


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