With the release of the third quarter result for 2023, Zenith Bank has, indeed, demonstrated another harbinger of a juicier outing for 2023 financial year ; all its performance metrics are practically looking up, No doubt , the bank is set to capture and retain its two usual laurels : the biggest bank by profitability and the most valuable bank .
Zenith Bank, Nigeria’s biggest bank by profitability, had its gross earnings increased in the third quarter of 2023 by a whopping 114% to N1.33 trillion from N620 .57b in the corresponding period of 2022 .This triple-digit growth in the top line arose from both interest income and non-interest income. Interest income grew in the current period by 72% to NGN670.9 billion from NGN390.8 billion in Q3 2022, while non-interest income grew by 186% from NGN212 billion to NGN607.2 billion.
This triple-digit growth in the top-line enhanced its bottom line as it wrenched up Profit before tax and Profit after tax by 149% apiece to N505.04b and N434.17b from N202.55b and N174.33b respectively with a deft application of management’s experience beginning from leveraging net interest income. The growth in profit similarly is attributable to the twin effects of the improvement in interest and non-interest income.
When Zenith Bank’s industry leadership becomes a subject of discussion among the industry stakeholders , the question usually is : what is driving its tenacious hold to this leadership? But the secret of a corporate champion like Zenith Bank may not be farfetched . Naturally , the survival and success of any organization is usually influenced by its ability to respond to the competing pressures from the changes in the business environment ,its strategic capability or its resources and competences as well as its cultural and political contexts .
Zenith Bank’s management from all indications is not oblivious of the above challenges .The bank has been proving it is led by a management with headlights shining farther out than those of its competitors, with a clear and broadly shared understanding of how the industry may be different in the future, by a management whose views about the future is competitively unique , the one that is fully alert to dangers posed new unconventional rivals , by a leadership that ensures the task of regenerating core strategies receiving as much top attention as the task of re engineering core processes,a management who is more an architect than maintenance engineer, the management with more improvement efforts on creating advantages new to the industry than catching up with its competitors.
The starting point of its successful strategies is the acquisition ,retention and development of competitive resources . Zenith Bank ,without any argument, has continued to build a competitive and robust balanced sheet with total assets and equity base highly strong and diversified . Its total assets grew by 48percent from N12.3trillion in 2022 to N18.2trillion in the third quarter of 2023 ., mainly driven by the growth in customers deposits .Out of this, its shareholder fund stood at N1.92trillion rising by 39percent from N1.38trillion .A puffy assets level could indicate improved strengths in mopping up transactions, including a better position in maturity transformation- the stuff banks are best suited for. It can also mean that the bank has applied some elastic to its wings in the form of more customer touch points, branches and Point of Sale devices. For zenith, it was all of these and more.
However, while its strong financial resources are critical and inevitable for success and survival , its capability to deploy them and generate competences is where the difference between it and its competitors become glaringly evident .
A detailed analysis of its third quarter for the financial year 2023 confirms this as much .By hauling up net interest income by 72 percent to N670.93b from N390.56billion, Zenith Bank has demonstrated its feat for squeezing water from a stone in an inclement environment troubled by inflationary pressures and other macroeconomic turbulence . In the year under review , became a tug of war for banks to navigate and break the metaphorical hard nuts which interest and credit rate risks constituted in the period under review .
In fact both of them became the potential spoilers for this bank .Though both interest income and expenses moved in the same direction , the bank’s interest expenses skyrocketed to hit N255.70b from N108b , a 237 percent increase while interest income increased by 72percent .Despite this , Zenith Bank grew its interest income because of the growth in risk assets as well as the effective pricing thereon.
Moreover . ,the damage done to the bottom line by the rising interest expenses is minimized by the absolute figure of its interest income considered to be massive enough to reduce its negative impact
As regards the credit risk , though the bank’s impairment charges on loan loss became the real spoiler to the bottom line rising from N37b to N210b within the period under review it was mere and deliberate policy of the bank . Though this caused the cost of risk to deteriorate from 1.3% in Q3 2022 to 5.5% in Q3 2023, however this is an improvement from Q2 2023 where cost of risk printed at 8.8% because of prudent management of our risk assets.
However , the bank explained that the impairment levels increased due to the deliberate incremental provisions necessitated by its conservative approach towards the heightened risk environment and the creation of a counter-cyclical buffer needed to deal with any impending volatility of exchange rates.
The management explanation is confirmed by the non- performing loan ratio improved to 3.8% in the period ended 30 September 2023, well below prudential limits.
.However . the above threats to the bottom line prompted by bank’s provision for loan loss impairment charges not withstanding, the bank has shown it is unstoppable . As , a good manager of a financial institution , the management revved up its non interest income items of its balance sheet as they hold the key to stabilizing earnings especially at a time the world or country is in recession and interest rate volatility is a factor to abort those potential spoilers . Its non interest income segment grew by 186% from NGN212 billion to NGN607.2 billion . The non-interest income growth is largely driven by the revaluation gain due to the unification of exchange rates during the year. Zenith Bank recorded N378.12b in the third quarter compared to N11.14b in the corresponding period of 2022 as its foreign currency revaluation gain .
Meanwhile Zenith is not only profitable but delivering a better value for money for its investors with its capability for cost optimization . To cement its place as the most profitable bank, return on Average equity (ROAE), improved to 35.1% from 18.0% an increase of 95% while return on Average assets (ROAA), improved to 3.8% from 2.2% , an increase of 73%
showed that it’s not what you get but what you make out of it that matters. Revenue had had a slip by 6.5 percent to N158.11 billion from N169.2 billion, a potential spoiler. But after suppressing interest expenses by 22.2 percent to N36.34 billion from N46.72 billion while at the same time guiding the growth of interest income by 5 percent to N122.5 billion from N116.7 billion, net interest income, which is a guide to how well a bank manages the interest rates it pays for borrowing and lending, jumped many paces to give a positive outlook to pre-tax profit.
POSITIVE IMPACTS ON PRETAX AND NET INCOMES
Pre-tax profit of the leading bank, buoyed by 6 percent in the period to to N57.29 billion from N54 billion. This helped to shoot up pre-tax profit margin to 36.2 percent, up from 32 percent. with that rise in pre-tax profit, the bank’s net profit flew 6.7 percent to N50.23 billion from N47 billion in the period, leading to a rise in net profit margin to 31.7 percent from 27.8 percent.
The first quarter result is the beginning of another attempt to wring good profit as was done in the last financial year, in its attempt to reaffirm leadership of the sector.
Full YEAR ANALYSIS : A SIMILAR CASE
In that year, the bank’s profit before tax (PBT) was N232 billion, up 16 per cent from N199 billion in 2017; while profit after tax (PAT) was N193 billion in 2018, up 11 per cent from N174 billion in 2017, in a somewhat fragile economy that is recovering from recession.
To cement its place as the most profitable bank, return on equity (ROE), and return on assets (ROA), improved to 23.8 per cent and 3.3 per cent in 2018 from 22.9 per cent and 3.4 per cent respectively in 2017. This is as gross earnings dropped by 15.4 per cent, from N745 billion in 2017 to N630 billion as at end 2018.
Similarly, the bank’s total assets grew by 6 per cent, from N5.60 trillion in the preceding year to N5.96 trillion in 2018; while shareholders’ fund grew marginally by 0.5 per cent, from N812 billion in 2017 to N815 billion in 2018. For such weighty shareholders’ fund, it is natural to pull in heft deposits as total deposits grew 7.3 percent to N3.69 trillion from N3.44 trillion.
But it was the bank’s ability to meet and surpass regulatory guidlines that was the highlight of the full year results.
MATURITY TRANSFORMATION TO THE RESCUE
Interest expenses were managed down by reduced by 33.3 per cent, as the bank’s stock of low-cost deposits increased, with interest paid on time deposits declining the most by 61.1 per cent.
COST OF RISK
Also, the cost of risk dropped to 0.9 per cent as against 4.3 per cent in 2017
while
LOAN LOSS EXPENSES
loan loss expenses moderated by 81.3 per cent.
BALANCE SHEET OUTLOOK
The bank’s balance sheet was robust as the loan to deposit ratio, liquidity ratio and capital adequacy ratios were 44.2 per cent, 72.0 per cent and 25 per cent respectively, all well above the regulatory threshold. However, there was a moderation in the bank’s capital adequacy ratio (CAR), from 27.0 per cent in 2017 as a result of the initial IFRS9 adjustment for the new expected credit loss (ECL) model for impairment recognition.
CREDIT QUALITY
The bank’s non-performing loans ratio, however, increased marginally to 4.9 per cent in 2018 from 4.7 per cent in 2017. However, this is still within the regulatory threshold and far below industry peers.
COST OF RISK
Also, the bank’s robust risk management framework ensured that the cost of risk reduced significantly from 4.3 per cent in the prior year to 0.9 per cent in 2018. This was achieved through the reduction in impairment charges by 81 per cent, N80 billion, compared to 2017, re-affirming the bank’s enhanced asset quality. In the same breadth, coverage ratio increased by 34.2 per cent from 143.4 per cent to 192.4 per cent over the same period, an indication of prudent disposition consistent with the bank’s known record of excellent credit risk management.
EFFICIENCY
As a result of the significant improvement in efficiency, the bank’s cost-to-income ratio settled at 49.3 per cent from 52.8 per cent in 2017.
CUSTOMERS DEPOSIT
The bank’s customer deposits grew by 7 per cent led by an increase of N109 billion in savings and an increase of N122billion in current accounts, providing it with a platform to rebalance its deposits mix. In 2018, costly deposits were foregone in favour of cheaper and more stable deposits resulting in a reduction of expensive and shorter dated deposits by N110 billion. This culminated in the reduction of cost of funds which declined by 40 per cent from 5.2 per cent in 2017 to 3.1 per cent for the year.
The results were a testament of the bank’s efforts to deepen its roots in the retail segment. This has led, in the main, to a remarkable increase in the volume of transactions across various electronic platforms as well as significant customer acquisitions. This growth in transactions on the bank’s digital channels continues to support the bank’s retail push as fees from e-products increased by 44 per cent over 2017 with retail deposit balances also growing by 25 per cent. The bank also stated that it would continue its investment in the retail end of the market to consolidate its leadership in both the corporate and retail segments.
CHAIRMAN AND CEO VIEWS CAPTURED
Speaking on the performance for that financial year, Chairman, Jim Ovia, assured shareholders of the bank’s commitment of continuing to deliver superior returns in the years ahead. Ovia said Zenith Bank remains a clear leader in the digital space, with several firsts in the deployment of innovative products, solutions and an assortment of alternative channels that ensure convenience, speed and safety of transactions. “To continue to cater to the varied appetites of our customers in a constantly changing world and stay ahead of the competition, therefore, we have invested massively in new technologies and innovative solutions in the last financial year. This is geared towards ensuring that we continue to provide best in class quality services that create value for all our stakeholders,” he said, noting that Zenith Bank made significant progress in the adoption and integration of sustainable banking principles into its business, especially in its credit administration process.
Consistent with this excellent performance and in recognition of its track record of stellar performance, the bank was recently ranked as the Most Valuable Banking Brand in Nigeria in 2018 by The Banker Magazine. Similarly, Zenith Bank was recognised as the Best Corporate Governance Bank in Nigeria by The World Finance for the sixth time just as Ethical Boardroom, a Europe based Boardroom watchdog reaffirmed this recognition by naming Zenith Bank as the Best Bank in Corporate Governance in 2018. Recognition has also come the way of the bank as it was recently named the Best Institution in Sustainability Reporting in Africa 2018 (SERAS Awards) and the Bank of the Year 2018 (BusinessDay).
According to the bank, its outlook for 2019 is positive, supported by improving macroeconomic conditions, relative exchange rate stability, and expected stability in the oil market
