The financial institution joined Nigerian Breweries to release full year result and accounts for the period ended December 31, 2019 to the Nigerian Stock Exchange (NSE) with a prospect of dividend payout to shareholders.
The lender performance was achieved through optimization of its net income on fees and commission, trading gains and other operating income that drive NII by 29 per cent gain.
Zenith bank in the year under review reported six per cent drop in Interest expense which eventually impacted on net interest income that dropped by 10 per cent but due to a challenging macro-environment.
With eight per cent in profit after tax, the management proposed a final dividend of N2.50 per share, which translates to a dividend yield of 12.9per cent, based on the last closing price of N19.40 (20 February 2020).
The lender last year paid an interim dividend of N0.30 to shareholders and coupled with the full dividend of N2.50. This brings the total dividend paid to shareholders to N2.80 in 2019 financial year.
The group in 2018 had proposed of N0.30 and a final dividend of N2.50 per share (December 31, 2017: interim; N0.25, final; N2.45) from the retained earnings account as at December 31, 2018.
This total dividend of N2.80 in 2018 while in 2017, the total dividend paid to shareholders was N2.70.
The Group’s audited results for the period under review shows a stable performance in balance sheets position as customer deposits and gross loans advance by 15 per cent and 22 per cent to drive total assets cross the N6.35trillion mark in 2019.
The solid financial performance for the period ended December 31, 2018 affirms Zenith’s Bank industry leadership position in profits, resilience and consistency in achieving its strategic objectives despite the challenging business environment.
Zenith Bank offers its clients a wide range of corporate, investment, business and personal banking products and solutions. It is one of the biggest and most profitable banks in Nigeria.
Increase in NII, effective management in cost boost profits
Zenith Bank’s for the period under review reported five per cent increase in gross earnings to N662.25billion in 2019 from N630 billion in 2018.
The Group interest income also dropped by six per cent to N415.56billion in 2019 from N440.05 billion in 2018, depressed by weaker income from loans to customers (-14.7 per cent to N232.95 billion), although income from investment securities grew over the corresponding period of the prior year (1.8per cent to N155.72 billion).
Nigerian NewsDirect note, however, that there was a growth in interest income from loans and advances q/q of 29.1per cent, reflecting the significant expansion in loans and advances (+26.5 per cent) to N2.31 trillion, as the bank strived to meet the minimum Loan to Deposit Ratio (LDR) limit of 65per cent.
Also, interest expense grew by 2.8per cent to N148.53 billion in 2019 from N144.5billion reported in 2018, reflecting the higher cost of deposits from customers (+12.0per cent to N80.58 billion).
Similar to interest income, there was significant growth in interest expense q/q by 7.9per cent. Given this expansion, it is clear that the bank took on higher cost deposits.
Continuing the trend during the year, NII was strong, settling 29per cent higher y/y at N232.12 billion from N179.96billion reported in 2018.
The strong growth recorded was supported by expansions in fees and commissions income (+22.4 per cent to N100.11 billion) and gains on investment securities (+46.9 per cent to N117.80 billion). This expansion in NII, offset the decline in net interest income (9.7 per cent to N267.03 billion.), and led to an expansion in operating income of 3.9 per cent 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. Total operating expenses (Opex) grew marginally by 2.8per cent to N231.83 billion from N225.5 billion reported in 2018, with the most pressure exerted by personnel expenses (13.6per cent to N77.86 billion), which constituted 33.6per cent of Opex.
Consequent on the muted Opex growth relative to operating income growth, cost-to-income ratio (ex-LLE) settled lower at 48.8per cent relative to 49.3per cent in the prior year.
For the year ended December 31, 2019, the Zenith Bank Group recorded a Profit Before Tax (PBT) of N243.29 billion which represents a five per cent growth over N232 billion reported in 2018.
This record in PBT was achieved through the Group’s optimisation of its cost of funds, cost-to-income ratio and cost of risk, ensuring that Earnings Per Share strengthened by 15per cent to N6.65 from N6.15 per share reported in 2018.
Profit for the period also rose by eight per cent from N193 billion in 2018 to N208.8 billion in 2019.
With growth in profits, Zenith Bank’s Return on average equity (ROAE) closed 2019 at 23.8 per cent for the second consecutive year while Return on average assets (ROAA) rose to 3.4 per cent from 3.3 per cent in 2018.
The group net Interest Margin (NIM) dropped to 8.2 per cent as cost of funds dropped by two per cent to three per cent in 2019 from 3.1 per cent reported in 2018.
CBN policy drives gross loan &advances to customers
The Group closed the year with seven per cent increase in total assets following a impressive performance in gross loans and advances to customers and customers deposits.
The Central Bank of Nigeria (CBN) had mandated commercial banks to lend 65 per cent of the deposit to support real sectors of the economy and Zenith bank last year did gross loans of about N2.46trillion, 22 per cent increase over N2.02trillion reported in 2018.
Zenith Bank’s Customers’ deposits also rose by 15per cent to N4.26trillion in 2019 from N3.69 trillion reported in 2018. Increase in customer deposits was driven by an increase of 45.7 per cent in domiciliary deposit that reached N1.17trillion in 2019 from N800.89billion in 2018 while saving deposit grew by 24.8 per cent to N614.3billion in 2019 from N492.2billion reported in 2018. However, term deposit gained 7.2 per cent to N495.7billion while demand deposit closed 2019 at N1.99trillion, 2.6 per cent increase over N1.93trillion reported in 2018.
Furthermore, Zenith Bank’s total equity added 15 per cent to N941.89 billion in 2019 from N815.75 billion reported in 2018.
The financial institution continued to maintain a disciplined and prudent approach to loan growth in line with its Risk Management framework.
The Group Non-Performing Loans (NPL) ratio remained low at 4.30 per cent in 2019 from 4.98 per cent in 2018, below five per cent threshold required by CBN.
In addition, despite the tight liquidity, the group’s liquidity ratio closed the period at 57.3 per cent from 80.9 per cent in 2018.
Zenith Bank’s Capital Adequacy Ratio (CAR) closed 2019 at 22 per cent from 25 per cent in 2018, above 16 per cent required by regulatory body being of the Symmetrically Important Banks (SIBs).
Conclusion
Despite the macro-economic challenges, alongside CBN’s monetary tightening policy which constraints most banks income generation and resulting in high cost of funds within the financial system, Zenith Bank has outperformed beyond general expectation.
The financial institution prospect last year was to drive for low cost and appropriately mixed deposit base to fund credit and money market transactions.
The management had promised to be a dominant player in the money market space to drive up income and profitability going forward.
The Group’s efforts to deepen its roots in the retail segment have started yielding benefits. This has resulted in a remarkable increase in the volume of transactions across various electronic platforms as well as significant customer acquisitions.
In conclusion, 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 Cash Reserve Ratio increase to 27.5 per cent
We however urged investors to BUY Zenith Bank shares.
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