Zenith Bank Plc, released its H1-2024 results, showing a 117.2 percent y/y growth in Gross Earnings (GE) from N967.3billion to N2.1trillion. The growth in the top line was driven by increases in interest and non-interest income, which grew by 176.7 percent y/y and 74.4 percent y/y respectively.
Given the impressive earnings, Profit before Tax (PBT) and Profit after Tax (PAT) grew by 107.5 percent y/y and 98.1 percent y/y, respectively. Analysts review the H1-2024 earnings below and highlight their expectations for FY-2024.
Maintains strong top-line growth
Zenith Bank Plc’s Interest Income expanded to N1.1trillion due to a 140.3 percent y/y increase in interest earned from loans and advances to customers. This accounted for 53.1 percent of the total interest income earned for the period H1- 2024 and printed at N610.4 billion.
This was particularly supported by the growth in the Bank’s loan book to customers, which climbed by 41.7 percent from N6.6trillion as of Dec-2023 to N9.3trillion as of June-2024. Additionally, interest earned on Treasury bills and government bonds contributed 22.7 percent and 16.9 percent, respectively, to the growth in the Group’s total interest income for the period. Both line items combined grew by 246.9 percent y/y from N131.2billion to N455.1billion, supported by the higher returning rates on fixed-income instruments.
However, Interest Expense rose by 182.9 percent y/y from N153.6billion in H1-2023 to N434.4billion in H1-2024 due to the elevated interest rate environment.
Despite the increase in Interest Expense, the Group’s Net Interest Income grew by 173.1 percent y/y due to the strong resilience in interest income.
Hence, the Group’s Net Interest Margin (NIM) climbed from 5.9 percent in H1-2023 to 8.8 percent in H1-2024, underscoring the efficient repricing of the Group’s interest-earning assets and interest-accruing liabilities.
For Non-interest Income, trading income grew tremendously to settle at N797.5billion in the period under review. This represents a 672.2 percent y/y climb compared to the N103.0billion recorded in H1-2023. This can be attributed to the gains earned on other trading books, including derivatives.
Additionally, net fees and commission increased to N109.6bn in H1-2024, up 149.6 percent y/y from N43.9billion in H1-2023. This came despite the 45.5 percent y/y rise in fees and commission expenses.
Meanwhile, the Group’s other income settled lower at a loss position of N5.9billion compared to the gains of N368.8billion in the same period of 2023.
This was due to the Foreign Exchange (FX) revaluation loss recorded in H1-2024 compared to the gains in H1-2023.
Despite the volatility in the FX market and continuous depreciation of the Naira, the Group did not realise gains from FX as a strategy to reduce their FX exposure.
Notably, the Federal Government, in July 2024, adjusted the Nigerian Finance Act 2023 to accommodate a 70.0 percent windfall tax levy on FX revaluation gains by banks.
Zenith Bank is exposed to this new regulation as its FX revaluation gains accounts for 19.4 percent of its retained earnings.
“That said, we believe Zenith Bank Plc is well positioned (as seen in its H1-2024 results) to sustain the performance trend in its financial and non-financial metrics”
In terms of efficiency, operating expenses grew by 115.3 percent y/y from N219.3billion in H1-2023 to N472.1bn in H1-2024 due to the elevated inflationary pressures and deteriorating macroeconomic conditions. Notably, fuel and maintenance costs rose by 212.1 percent y/y, resulting from rising energy costs.
Additionally, the 60.7 percent y/y increase in the AMCON levy (which accounts for 27.7 percent of the lump sum) contributed to the rise in operating expenses.
As a result, the cost-to-income ratio rose by 104bps from 38.5 percent in H1-2023 to 39.4 percent in H1-2024 due to the Group’s operating expenses (up 115.3% y/y), outpacing the Group’s operating income (107.6% y/y).
Profitability/dividend
Overall, the growth in interest and non-interest income was sufficient to propel overall profitability.
Notably, the Bank’s PBT and PAT rose by a whopping 107.5 percent y/y and 98.1 percent y/y to settle at N727.0billion and N578.0billion, respectively.
As a result of the solid profitability, the Group’s Earnings per Share (EPS) rose significantly from N9.29k in H1-2023 to N18.41k in H1-2024. Lastly, the trailing 12-month Return on Average Equity (ROAE) improved to 41.9 percent in H1-2024, previously 36.9 percent in the corresponding period of 2023.
Consequently, in maximizing value for shareholders, the Group declared an interim dividend of N1.00/share.
This represents the highest half-year dividend payout in the history of the Group. The qualification date for the dividend is 13th September 2024, while the payment date is 20th September 2024.
Group assets expand
The Group’s total assets expanded by 35.4 percent y/y to N27.6 trillion, supported by loan book growth, which surged by 58.8 percent y/y to N13.3 trillion.
This was aided by loan disbursements to customers and the translation effect of foreign currency-denominated loans.
Additionally, investment securities and cash balances settled at N4.7trillion and N4.5trillion, up 42.5 percent y/y and 4.9 percent y/y, respectively.
Regarding asset quality, impairment charges climbed by 99.7 percent y/y to print at N415.3billion in H1-2024 from N207.9billion in H1-2023 due to the heightened risk environment.
The bulk of this arose from provisions for Expected Credit Losses (ECL) on financial instruments, particularly loans and advances. This accounted for 84.8 percent of the total figure. As a result, the Cost of Risk (COR) rose from 8.8 percent in H1-2023 to 9.7 percent in H1-2024. Analysts envisage that this is a part of the Group’s strategy to smoothen earnings, given the high revenue generated for the period under review.
Non-performing loan rises
Meanwhile, Zenith Bank’s Non-Performing Loan ratio (NPL) rose modestly from 4.4 percent in Dec-2023 to 4.5 percent in June-2024.
Although it remains below the maximum prudential requirement of 5.0 percent, the modest growth was due to the challenging macroeconomic environment.
Lastly, the Group’s Capital Adequacy Ratio (CAR) improved from 21.7 percent in FY-2023 to 23.0 percent in H1-2024, indicating improvement in the Bank’s capital reserves and ability to meet its obligations.
Outlook
Going forward, experts expect a continuous increase in topline growth for Zenith Bank Plc in H2-2024, following growth in interest and non-interest income.
“We anticipate that the elevated interest rate environment will support higher income earned on interest-bearing assets. Conversely, we note that this may result in higher interest expenses on customers’ deposits, thus weighing on the Group’s overall Net Interest Margin (NIM). Additionally, we expect sustained growth in the Group’s non-interest income in H2-2023, arising from higher gains from trading financial assets. This will ensure Zenith Bank Plc’s overall profitability. However, we note that challenges in the form of tough regulatory, monetary, and macroeconomic environments may serve as potential headwinds to the Group’s revenue. In addition, we expect rising inflationary pressures to continue to weigh on operational efficiency and overall profitability,” the bank said.
On the recapitalisation exercise, Zenith Bank Plc announced the commencement of its Right Issue and Public Offer for Subscription to meet its capital requirement.
The offer size is 5,232,748,964 ordinary shares of N0.50k each at N36.00/share for the right issue to its existing shareholders on the basis of one new ordinary share for every six ordinary shares held.
Meanwhile, the public offer size is 2,767,251,036 ordinary shares of N0.50k each at N36.50/share to the general public. The offers were initially scheduled to close on the 9th August 2024.
However, due to the nationwide protest, which disrupted business operations, the offers were extended by two weeks to close on 23rd September 2024.
“That said, we believe Zenith Bank Plc is well positioned (as seen in its H1-2024 results) to sustain the performance trend in its financial and non-financial metrics.”
Green flags
1. Expanding assets base
2. Increased lending to customers
3. Strong top-line growth
Red flag
1. Increase on Non-performing loan.
