One of the foremost new generation banks and strong financial services provider recently released its audited FY 2019 numbers, which were generally in line with capital expert’s expectations. As expected, the zenith bank performance was supported by strong non-interest income growth, just as interest income declined during the period.Nevertheless, due to the stronger expansion in Net interest income (NII) which is the difference between revenues generated by interest-bearing assets and the cost of servicing (interest-burdened) liabilities. For the Zenith, the assets typically include commercial and personal loans, mortgages, construction loans and investment securities recorded good growth in profitability.
As a result of the strong performance, the bank proposed a final dividend of N2.50 per share, which translates to a dividend yield of 12.9%, based on the last closing price of N19.40 as at February 20, 2020.
The reports showed an interest income declined by 5.6% year on year to close at N491.27 billion, depressed which was attributed to weaker income from loans to customers that declined by 14.7% year on year to N232.95 billion, although income from investment securities grew over the corresponding period of the prior year by 1.8% year on year to N155.72 billion.
However, the report revealed that there was a growth in interest income from loans and advances quarter-on-quarter of 29.1%, reflecting the significant expansion in loans and advances by 26.5% year on year and by 12.9% quarter-on-quarter to N2.31 trillion, as the bank strived to meet the minimum Loan Deposit Ratio (LDR) limit of 65.0%.
Also, interest expense grew by 2.8% year on year to N148.53 billion, reflecting the higher cost of deposits from customers by 12.0% to N80.58 billion. Similar to interest income, there was significant growth in interest expense quarter-on-quarter by 7.9%. Given this expansion, it is clear that the bank took on higher cost deposits.
Continuing the trend during the year, non-interest income (NII) was strong, settling 29.0% higher year on year at N232.12 billion. The strong growth recorded was supported by expansions in fees and commissions income by 22.4% year on year to N100.11 billion and gains on investment securities by 46.9% year on year to N117.80 billion. This expansion in NII, offset the decline in net interest income by 9.7% year on year to N267.03 billion, and led to an expansion in operating income of 3.9% year on year to N353.12 billion.
Operating expenses growth was muted, as the bank continued to focus on cost management in the face of weak income growth. Opex grew marginally by 2.8% year on year to N231.83 billion, with the most pressure exerted by personnel expenses by 13.6% year on year to N77.86 billion, which constituted 33.6% of Opex. Consequent on the muted Opex growth relative to operating income growth, cost-to-income ratio settled lower at 48.8% relative to 49.3% in the prior year.
Also, profitability was stronger, with profit-before-tax settling 5.0% higher year-on-year, while profit-after-tax settled 8.0%, on account of a 10.0% decline in income tax expense.
According to experts at Cordros Research, a member of capital market community in Lagos, the bank’s performance remains in line with expectation. The improved growth in interest income quarter-on-quarter is in line with our prognosis, however, we expect pressure on interest expense in 2020, due to the implementation of the higher CRR (although the DCRR may ameliorate this somewhat).