CardinalStone Research
Zenith Bank Plc (ZENITHBANK: TP 29.21 – BUY) has reported a 4.8% YoY increase in EPS to N4.80 for 9M’19 in its latest filing with the Nigerian Stock Exchange (NSE). The growth in earnings was largely propelled by stronger trading income (+26.3% YoY) and net fee income (+11.9% YoY).
Some positives:
- Gross loans grew by 12.9% to N2.2 trillion from the level as at Q2’19. Year-to-date, the bank has been able to grow loans by 9.3% which is an improvement from the contraction of 3.2% observed as at Q2’19.
- We like that asset quality did not deteriorate, despite the strong loan growth observed in the quarter under review. Thus far the bank has been able to keep its NPL ratio within the CBN’s guideline of 5.0% (9M’19: 4.95%; FY’18: 4.98%)
- We note the 27.9% QoQ increase in net interest income during the quarter. We believe this was supported by improvement in net interest margin (NIM) from 8.6% in Q2’19 to 8.7% in Q3’19, as well as a 5bps decline in cost of funds during the period.
- Operating expenses declined by 25.7% QoQ, which we believe was partly impacted by the completion of AMCON payments for the year in Q2’19. Consequently, the cost to income ratio moderated to 42.1%, the lowest in over 7 quarters. We also note the 61.1% QoQ reduction in impairment charges in Q3’19, which, in addition to the observed growth in risk assets, led to a significant moderation in the cost of risk to 0.8% from 2.4% in Q2’19.
- Overall, earnings before taxes printed strongly in Q3’19 to N64.5 billion (+18.6% QoQ), the strongest performance in over 11 quarters.
Some concerns:
- Non-interest income (-39.0% QoQ) came in weaker in Q3’19. Noticeably, net fees and commission income slumped by 41.4% QoQ, while net trading gains also weakened by 41.7% during the quarter.
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