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ZENITH BANK: CLINCHING THE LAUREL AGAIN.

Zenith Bank Nets N103.735bn  Profit to Retain the Leadership.

The operating environment for banks in Nigeria was not quite  friendly  in the first half of 2020 ;like other economic agents , banks were confronted with a macroeconomic indices  flashing red while policy somersault and fierce competition made situation further demanding. Moreover, the Covid 19 pandemic compounded the ugly terrain .Despite the above challenges  some banks still sprung surprises developing an iron teeth to break a metaphorical hard nut . One these banks is Zenith Bank Plc ,a traditional industry profit leader. At the end of the first half of the year it  topped the table as the most profitable bank with N103.8 billions profit after tax ,an increase of 16.8 percent over the corresponding period of June 2019 .

To achieve the above feat in a deleterious environment was not that easy .Under the stifling environment  Zenith Bank could only grow its gross earnings by 4.4 percent from N331,586  billion in the first half of the year 2019 to N346,088 billion in the first half of the ongoing financial year. A detailed of the bank’s book revealed that out  of the gross earnings for the period of  N346.088bn,  N296.983bn or 85.81% was derived from its Nigeria corporate retail and pension custodian services business; followed by the N41.328bn from outside Nigeria (Africa); and N12.283bn from Europe.
A further breakdown of the figure showed that interest and similar income accounted for N216.954bn, up from N214.601bn, of which N177.756bn was earned from its Nigerian corporate retail and pension custodian services business. Interest income from outside Nigeria (Africa) stood at N30.162bn; while Europe fetched N9.932bn

If the gross earnings  experienced a slow growth the interest income was further slackened with a mere 1.1 percent  jump from N214.6 billions in 2019 to N216.9 billions in the period under  review.  However  ,with a daft application  of experience and skillful handling of the traditional and inherent mismatches between lending and borrowing rates as well as between assets and liabilities, it succeeded in hauling up its net interest income  by 16.5  percent after suppressing the interest expenses during  the period by 17 percent from N142.515 billion to 157.409 billion in June 2020 .Net interest income, a guide to how a bank manages the interest it pays on borrowing and lending ,proved the worth and skill of this  bank in the core banking business of maturity transformation. This is the live wire of a deposit money bank and Zenith  bank highly masters the game. The secret lies in controlling the cost drivers .Interest and similar expense dropped to N59.545bn, as against the previous N72.086n. The cost details revealed operations in Nigeria was  responsible for N49.286bn; followed by N9.012bn from Africa, and N2.152bn from Europe.

But the battle was not over . Loan impairment losses became an herculean task before the management rising by 74 percent from N13.735 billions in June 2019 to N23.923 billions in June 2020.ItsNigerian operations were responsible for the N20.165bn impairment loss on financial assetsThis expectedly brought down its net interest income after impairment loss by 3.7 percent  to N133.486 billion from N128.780 billions in the half year 2019.

However,the non interest income segment of the bank’s  was not impressive and almost became a spoiler in the value minting machine .While the bank put up a good fight in the core banking area retaining a positive the outlook  despite unimpressive  earnings yields and heavy risks involved , the non interest income segment unleashed  stricter challenges dictated by the regulatory policies that cut back income drivers and potentials. Naturally, a good manager of a bank or financial institution usually rev up non interest income items of its balance sheet because it holds the key to stabilizing earnings especially at the time of interest rate volatility . Income from the net fees and commissions fell by 39.9 percent to N33.505 billions from N55.815 billions in the corresponding period of 2019Specifically, fee and commission income for the period was driven by the N9.063bn account maintenance fee; credit related fees at N9.063bn, dropped from previous N12.684bn; while the drop in fees on electronic products was more significant, from N27.076bn to N8.937bn; among others.
Trading gains also substantially reduced the impact of the drop in net fee income, climbing N13.731bn or 30.44% up from N45.101bn to N58.832bn, helped by the N58.797bn from Nigeria. Even this gain could have been more, but for the N13.572bn derivatives loss, a slight improvement over the N13.827bn loss of prior half-year. Of the total trading gains, treasury bills trading income contributed N65.097bn, up from N55.253bn; while bonds trading income stood at N5.278bn, up from N1.737bn.Net income on fees and commission dropped by N22.312bn or 39.97% to N33.503bn from N55.815bn, but the impact was mitigated by the N15.337bn or 174% growth in other operating income from N8.814bn in the 2019 half-year to N24.151bn. A total of N21.33bn came from the Nigerian business and N6.421bn was derived from the African operations. Further review of the numbers showed that the jump came from the foreign currency revaluation gain, which soared from N6.484bn to N22.021bn; while the bank recovered N1.007bn from loans previously written off compared to nil in the corresponding period of last year. But the management succeeded in jerking up its revenue from other operating income and currency revaluation gains rising by 174 percent,239 percent respectively between the two periods .


Depreciation of property and equipment rose to N12.471bn in the period under review, from N9.971bn in the prior half-year; amortization of intangible assets inched from N1.514bn to N1.778bn; just as operating expenses grew from N76.803bn to N82.731bnMoreover, the ability of   management to rein the  w operating expenses with just  7.7 percent increase further enhanced the bottom line as it only grew from N76.803 billions in 2019 to N82.731 billions in June,2020 .This led to a profit before tax  of N114.124 billions in 2020 as against N111.677 billions in 2019 , a marginal  2.2 percent increase. But a 54 percent decline in the bank’s income tax expenses fast-tracked its net income as it rose by 16.8 percent fromN88.882 billions in 2019 to N103.826 billions . The decline in income tax gave a strong leap to the net income margin in the first half of 2020 .While the bank pre tax margin declined marginally from 33.7 percent in June 2019 to 30 percent in the similar period of 2020 its net income margin increased to 30 percent from 26.8 percent of 2019 .

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