Zenith Bank's H1 2021 Audited Results: Bottom-line Earnings Rises But Interest Margin Falls


Wednesday, September 1, 2021 / 10:45 AM / by Adaeze Nwachukwu, Proshare Research / Header Image Credit:  Zenith Bank 

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Zenith Bank Plc's H1 2021 audited result showed marginal growth in profitability and a fall in earnings attributed to the lower yield environment as interest income dipped by -6.00%, despite the increase in interest-bearing assets.


Nigeria's largest bank by shareholders funds equally recorded growth in its loans and advances and customer deposits. However, the loan-to-deposit ratio fell by -9.11% to 51.90%.


Key Highlights

  • Gross earnings fell by -0.15% year-on-year (Y-o-Y) to N345.56bn in H1 2021 from N346.09bn in H1 2020.
  • Net interest income was up by +1.61% Y-o-Y to N159.94bn from N157.41bn in H1 2020
  • Non-interest income up by +8.83% to N126.77bn from N116.49bn in H1 2020
  • Profit before tax inched up slightly by +2.57% to N117.06bn from N114.12bn in H1 2020
  • Basic and diluted earnings per share rose by +2.42% Y-o-Y to N3.38 from N3.3 from H1 2020
  • Gross loans rose by +6.90% Y-o-Y to N2.99trn in H1 2021 from N2.79trn in H1 2021
  • Deposit from customers grew by +17.64% to N5.77trn from N4.90trn in H1 2020
  • Total assets inched up by +12.34% in H1 2021 to N8.52trn from N7.58trn in H1 2020
  • Shareholder's fund was up +15.62% to N1.14trn in H1 2021 from N988.98bn in H1 2020
  • Return on average equity fell by -12.56% to 18.8% from 21.50% un H1 2020
  • Return on average asset also fell to 2.50% from 3.00% in H1 2020
  • Net interest margin dipped by -27.78% to 6.50% in H1 2021
  • The cost-to-income ratio went up by +3.31% to 56.10%
  • The group's loan-to-deposit ratio declined by -9.11% Y-o-Y to 51.90%
  • Capital adequacy ratio rose by +10.0% Y-o-Y to 22.00% in H1 2021
  • The non-performing loans ratio of the group improved by -4.04% to 4.51% in H1 2021.


Bank Vs ASI; Running in Lockstep

The share price of Zenith Bank has highly variable, trading at N21 between April and May 2021, its lowest levels; however, the bank's stock price has begun a rebound.


The sector's index and the financial institution's share price moved in the same direction, indicating the lender's share price mirrors the sector's index movement. Although, the year-to-date (YTD) performance of the industry index has declined more than Zenith bank's share price performance. The bank's share price dipped YTD by -2.40%, while the sub-sector index fell by -3.71% as of 30th August 2021.


Zenith bank's share price movement also reflects the Nigerian Exchange All Share Index (NGX ASI) movement, as the ASI fell by -2.34% in the same period (see chart 1 below).


Chart 1: YTD Movement of The Banking Sector Index & Zenith Bank's Share Price as of 30 August 2021

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Source: NGX, Proshare Markets

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Gross Earnings - Steady but Under Pressure

Gross earnings of the retail lender fell Y-o-Y by -0.15% to N345.56bn in H1 2021 from N346.09bn in H1 2020. This was despite the +8.83% rise in non-interest income to N126.77bn in the period. Interest income fell by -6.00% to N203.93bn, propelled by the decline in yields of interest-bearing assets, as interest expense also declined by -26.12% to N43.99bn in H1 2021.


H1 2017 records the highest growth rate of +77.10%, while H1 2018 has the highest percentage decline of -15.31% of the bank's gross earnings (see chart 2 below).


In US Dollar terms, gross earnings were down by -12.12% to US$842.50m from US$958.69m in the same period using the investors' and exporters' window closing rate for the conversion. Gross earnings of the bank declined more in US dollar terms because of the devaluation of the domestic currency.


Chart 2: Zenith Bank's Gross Earnings 2016 - 2021 (N'bn)

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Source: Zenith Bank's Financial Statement, Proshare Research

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Profit Before Tax

Contrary to the marginal decline in gross earnings, the bank's PBT edged slightly upwards by +2.57% in H1 2021. From N114.12bn in H1 2020 to N117.06bn in H1 2021, this was supported by a -17.24% decline in impairment loss on financial assets, despite a +10.31% rise in operating expense.


The growth rate of PBT has been increasing at a decreasing rate in recent years; the bank had its highest percentage growth of +45.67% in H1 2017 while H1 2020 records the lowest percentage growth in PBT during the period under review (see chart 3 below).

Translating to US dollars, PBT fell by -9.72% instead of the +2.57% growth recorded in Naira terms. From US$316m in H1 2020 to US$285.40m in H1 2021 induced by the devaluation of the Naira in the period.


Chart 3: Zenith Bank's Profit Before Tax 2016 - 2021 (N'bn)

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Source: Zenith Bank's Financial Statement, Proshare Research


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Impairment Charges

Zenith bank's impairment charges improved in H1 2021 by -17.24% to N19.79bn from N23.92bn. As expected, loans and advances accounted for 76.96% of expected credit loss on total impairment loss of the bank in the period, which is also a decline from 83.49% contribution in the corresponding period of the previous year. The fall in impairment loss on financial assets positively impacted the bank's earnings in the period.


The improvement in impairment charges in H1 2021 comes after the institution saw a +74.09% Y-o-Y rise in H1 2020 (see chart 4 below).



Chart 4: Zenith Bank's Impairment Charges 2016 - 2021 (N'bn)

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Source: Zenith Bank's Financial Statement, Proshare Research

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Non-Performing Loans

In H1 2019, the NPL ratio was 5.3% above the regulatory threshold of 5%, the group's highest NPL ratio in recent years. However, H1 2020 and H1 2021 figures show the bank has managed to keep its NPL ratio below CBN's threshold.


In H1 2021, the NPL ratio improved to 4.51% from 4.7% in H1 2020, even as the bank's loans and advances grew by +2.10% in the same period (see chart 5 below).


Chart 5: Zenith Bank's Non-Performing Loans H1 2016 - H1 2021

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Source: Zenith Bank's Financial Statement, Proshare Research


Loans & Deposits

The retail lender's loan-to-deposit ratio (LDR) in H1 2020 and H1 2021 has not met CBN's minimum of 65%, which attracts a levy of additional cash reserves requirement of 50% of the shortfall by the regulator. The implication should have been tighter liquidity. However, the liquidity ratios tell a different tale. H1 2021 liquidity ratio rose to 69.90% from 50.8% in H1 2020.


The growth in loans and advances outweighed the growth in deposits from customers in H1 2021. The group's loans and advances rose by +8.12% to N2.84trn, while the customer's deposit increased by +17.64% to N5.77trn in the same period (see chart 6 below).


Chart 6: Zenith Bank's Loan-to-Deposit Ratio H1 2016 - H1 2021

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Source: Zenith Bank's Financial Statement, Proshare Research


Total Assets

The total asset growth of Zenith Bank has been choppy, with some periods outperforming other periods. In H1 2021, total assets grew Y-o-Y by +12.34% to N8.52trn, which is lower than the +28.51% growth in H1 2020 (see chart 7 below).


Major drivers in the growth in total assets were the +104.80% Y-o-Y growth in treasury bills to N1.71trn, +33.78%, and +8.12% growth in investment in subsidiaries and loans and advances, respectively.


Despite the growth in treasury bills and the +8.12% rise in loans and advances, interest income fell by -6.00%; this resulted from the low yield environment during the period, as stated earlier.



Chart 7: Zenith Bank's Total Assets Growth Rate H1 2016 - H1 2021

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Source: Zenith Bank's Financial Statement, Proshare Research


Shareholders Fund

The growth rate of shareholders fund of the financial institution was like the growth of total assets, with H1 2020 recording the highest percentage growth of +20.68% while H1 2018 had the lowest percentage growth in shareholders' funds during the period under review.


In H1 2021, total equity was up Y-o-Y by +15.62% to N1,14trn from N988.98bn in H1 2020. The drivers of the shareholders' equity were; retained earnings and other reserves, both grew by +23.75% and +18.32%, respectively (see chart 8 below).


Chart 8: Zenith Bank's Shareholders Fund Growth Rate H1 2016 - H1 2021

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Source: Zenith Bank's Financial Statement, Proshare Research


Zenith Bank's H1 2021 result showed weak growth, particularly in the bank's bottom-line income. However, the decline in its loan to deposit ratio (LDR) to 51.90% suggests that the bank had cut back its lending relative to its customer deposits, given the volatile domestic macroeconomic conditions. The cost-to-income ratio (CIR) rose to 56.10%, which remains relatively high compared to the likes of GTCO, with a CIR of 38.2% as of FY2020.


The bank's investor return fell in H1 2021, return on average equity declined to 18.80% from 21.5%, while return on average asset fell to 2.50% from 3.0% in H1 2020. The fall reflects the squeeze on earnings brought about by the increasingly complex domestic operating environment.


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