Zenith Bank maintained the earnings growth momentum throughout 2021 year

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bank proposed a final dividend of NGN2.80 per share

The management of Zenith Bank today released its audited 2021Full Year reports, which showed that the bank’s earnings growth remained defensive during the period. Specifically, continued improvements in the non-core business segment supported the performance, despite the lingering challenges in the core banking business environment. According to the report the EPS recorded NGN7.78 grow by 6.1% year on year compared with 2020Full Year report as a result of that, the board of the bank proposed a final dividend of NGN2.80 per share higher than 2020Full Year which stood at NGN2.70 per share. This brings the dividend yield of the bank to 10.3% based on the closing price of NGN27.10 share as at today Monday February 28, 2022.

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Other indicators are: Interest income which grew by 1.6% year on year to NGN427.60 billion, which supported primarily by the income from loans and advances to customers that stands at16.5% year on year to close at NGN292.22 billion. The report disclosed that the impressive income growth from loans and advances was in line with the bank’s drive to moderate sanctions from the CBN’s Loan-to-Funding Ratio (LFR) initiative non-compliance. While loan creation increased by 20.8% to NGN3.36 trillion during the year too. Nevertheless, others contributory lines recorded declines – loans and advances to other financial institutions by 74.4% year on year and investment securities by 10.4% year on year respectively.

Also, interest expense declined by 11.8% year on year to NGN106.79 billion, reflecting lower interest costs on deposits from customers also declined to 25.6% year on year to NGN60.32 billion as the bank has maintained its strategy of amassing lower-cost deposits (CASA: 93.0% as at 2021Full Year similar to 2020Full Year: 93.9%. On the other hand, the cost of borrowings by17.4% year on year to NGN43.04 billion increased. Consequent to the decline in interest expense, net interest income settled higher by 7.0% year on year at NGN320.80 billion. After accounting for credit impairment charges by 51.6% year on year to NGN59.93 billion, while net interest income (ex-LLE) settled at 0.3% higher year-on-year. The significant growth in LLE confirms the higher risk environment as impairment charges are estimated using the IFRS9 Expected Credit Loss model.

 

Non-interest income (NII) generation was strong, settling at 22.8% higher year-on-year at NGN309.04 billion. The growth recorded was supported by expansions in gains on investment securities by 37.6% year-on-year to NGN167.48 billion and net fees & commissions income by 31.0% year-on-year to NGN103.96 billion as the sector continues to benefit from the increased adoption of digital banking platforms. This expansion in NII, alongside the growth in net interest income, led to an 11.3% year-on-year increase in operating income to NGN569.91 billion.

 

 

According to the report, operating expenses growth was also significant given inflationary pressures in the macroeconomic environment and balance sheet expansion – leading to higher non-discretionary regulatory expenses. As a result, opex grew by 13.1% year-on-year to NGN289.53 billion, with most pressures exerted by AMCON levy by 22.5% year-on-year and other operating expenses by 22.0% year-on-year following a surge in IT, outsourcing services and maintenance costs. Following the opex growth relative to operating income growth, the bank’s cost-to-income ratio (ex-LLE) settled marginally higher at 50.8% as against 2020Full Year at 50.0%.

 

“Given the lower interest expense and higher NII, profitability was more robust with profit-before-tax settling 9.6% higher year-on-year. However, profit after tax was 6.1% higher year-on-year, on account of a 41.6% year-on-year increase in income tax expense.

 

Commenting on the results: Analysts at Cordros Research said they “like that Zenith Bank maintained the earnings growth momentum throughout the year, although at a slower pace of 6.4% in 2021as to 10.1% in 2020FY as it continues to grapple with headwinds from the business and regulatory environment. In their opinion, the bank remains one of the premier banks in the country, with strong fundamentals that denote its strength. We remain positive regarding the long-term outlook for the bank and expect financial performances to remain strong, supported by strong underlying fundamentals and strong management.”


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