Zenith bank published its Q1 2020 unaudited financials for the period ended 31st March 2020, recording a 5.50% growth in gross earnings from N158.11 billion in Q1 2019 to N166.81 billion in Q1 2020, largely driven by the growth in non-interest income by 42.82%. Interest income declined by 6.65% from N122.48 billion to N114.33 billion in Q1 2020, as a result of a 36.09% reduction in interest on treasury bills which dropped to N15.30 billion from N42.40 billion in Q1 2019 due to the lower yields on government securities in the period, moreover, the bank s investment in treasury bills dropped mildly by 2.76%.
Meanwhile, interest on loans and advances granted, coupled with interest on government bonds and placement with banks and discount houses spiked by 15.84% to N67.54 billion, 22.69% to N20.43 billion and 81.61% to N88.88 billion respectively, but couldn’t lead to positive growth in interest income. On a positive note, interest expense declined by 9.67% from N36.34 billion to N32.82 billion mainly driven by the drop in interest paid on current account (25.60% to N2.23 billion) and borrowed funds (38.97% to N10.96 billion). On that note, the spike in interest income and impairment losses on loans consequently dropped the net interest income by 7.72% to N77.55 billion from N84.04 billion in Q1 2019.
The impressive growth in non-interest income by 42.82% to N46.63 billion in Q1 2020 was largely driven by the rise in trading gains (98.02% to N15.46 billion) and other operating income (345.69% to N15.73 billion), while fees and commission declined (27.57% to N15.43 billion). Likewise, the 21.21% growth in income from treasury bills trading, and gains from derivative instrument supported the rise in trading income, while the gain in foreign exchange revaluation by 339.35%, drove the increase in other operating income. The bank’s operating expenses increased, growing by 10.10% from N59.40 billion to N65.40 billion in Q1 2020, due to the increase in other operating expense, depreciation and amortization cost. However, personnel expenses dropped marginally by 0.73%. In spite of this, the cost to int come ratio settled at 52.66% from 50.90% in Q1 2019. Consequently, the sustained rise in operating cost and tax expense pressured growth in profit before tax (2.61% to N58.78 billion), and profit after tax of (0.58% to N50.52 billion).
In the period, loans and advances expanded by 43.99% to N2.58 trillion from N1.79 trillion in FY 2019. Loan to deposit ratio (LDR) stood at 57.84% when compared with FY 2019 which settled at 54.09%. The total deposit also rose by 24.95% from N3.57 trillion in Q1 2019 to N4.46 trillion at the end of Q1 2020. Though the bank maintains its strong performance in the period, it remains unable to meet the 65% regulatory benchmark for the Loan to deposit ratio (LDR) fixed by the Central Bank.
With our blended target price of N31.26, We maintain a BUY recommendation at the current price, as the stock trade’s at a discount of our estimated fair value.