BY BAMILDELE FAMOOFO
The significant earnings growth recorded by Zenith Bank Plc in first quarter of 2022 did not reflect so much on its profit as sharp increase in operating expenses.
While gross earnings increased by 21.7 percent year-on-year (Y/Y) to N191.52billion in first quarter ended March 31, 2022, profit after tax (PAT) grew only by 9.7 percent at N58.2billion. After tax deduction, profit stood at N67.99billion, representing 11.4 percent growth y/y.
Operating expenses expanded significantly during the period, and pressured the trickle-down impact of the operating income growth to the bottom-line significantly. All contributory lines impacted, however, the impact of regulatory charges – AMCON levy (+12.8% y/y to N21.40 billion), personnel expenses (+16.1% y/y to N21.54 billion) and the inflationary environment – fuel and maintenance (+329.1% y/y to NGN3.42 billion) were more pronounced on the bank’s earnings. Following the OPEX growth relative to operating income growth, the bank’s cost-to-income ratio (ex-LLE) settled marginally higher at 55.0 percent (Q1-21: 53.2%).
Interest income grew by 24.9 percent y/y to N126.38 billion, supported by all contributory lines – loans and advances to customers (+35.7% y/y), Investment securities (+16.5% y/y). Interest expense also rose significantly, increasing by 43.5 percent y/y to settle at N25.85 billion. Given the recent results by other players, it seems there have been increased funding cost pressures across the industry. However, the nominal increase in income was enough to lead to a growth in net interest income. After accounting for a substantial 75.3 percent y/y increase in credit impairment charges, net interest income (ex-LLE) settled 20.9 percent higher year-on-year.
The bank recorded an 11.8 percent y/y growth in non-interest income, which was supported by robust growth in net fees and commissions income (+16.7% y/y) and trading income from investment securities (+159.2% y/y), even as a substantial FX revaluation loss of NGN10.48 billion (vs gain of N6.90 billion in Q1-21) pressured other operating income. Given the growth from funded and non-funded income, operating income settled 15.7 percent higher year-on-year.
Financial experts however commended the bank’s performance as Cordros research said: “We like that Zenith Bank maintained the earnings growth momentum belying the tough operating environment. The bank has continued to grow both its core and non-core banking businesses well, and seems in line to record a good 2022FY. For us, the major point of concern is the operating expenses pressure most likely due to the inflationary environment. Given inflation expectations, we expect these pressures to remain, which would tether earnings growth.”
