- ZENITHBANK grew loans (+22.1%) for the first time in three years. Despite the loan growth, credit quality improved as reflected in the 60 bps moderation in NPL ratio to 4.3%, although the cost of risk inched marginally higher to 1.1% (+20bps)
- NIR improved by 29.0% YoY. The growth in NIR was largely supported by the strong trading gains (+46.9% YoY) posted during the period. Noticeably, the bank recorded a 47.1% growth in bonds and T-bills trading gains that likely resulted from the fall in yields during the latter part of FY’19. For context, in Q4’19, ZENITHBANK more than doubled its trading income from the previous quarter (Q4’19: N50.9 billion; Q3’19: N21.8 billion)
- Although operating expenses rose 2.8%, we note the improvement in efficiency as the cost to income declined by 100bps
- ROE and ROA came in relatively flat at 23.8% and 3.4% respectively. In addition, both liquidity (57.3%) and capital adequacy (22.0%) ratios remained above regulatory thresholds in the review period.
- Interest income declined 5.6% YoY likely due to falling asset yields. Interest income from loans and advances was noticeably impacted, falling 14.7% from the previous period. In contrast, interest income from investments rose 9.4% YoY, mostly impacted by a two-fold increase in income from placements.
- Net interest income was weakened (-9.7% YoY), largely reflecting the fall in NIMs. This, in our view, suggests increasing asset yield pressure given that the cost of funds was relatively flat at 3.0%. We also note the 7.5% fall in investment securities which could also have constrained the bank’s interest-earning capability during the period.
- The cost of risk rose 20bps to 1.1%. While we believe this is mild, it lends credence to our initial view that an aggressive approach to lending could have possible implications for risk measures. It is still early, however, to assess the full implication of the loan growth on asset quality, given that the majority of loan growth occurred towards the end of the year.
- Notwithstanding the growth in loans, our assessment suggests that loans to deposit ratio, at 56.3%, was shy of the CBN’s guideline of 65.0% as of December 2019.
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