Zenith Bank…Strong Top And Bottom Lines, Boosted By Growth In Non-interest Revenue

Must Read

How To Block Your Bank Account And SIM Card In Case Of Emergency

Losing your phone and wallet or having them stolen can be very frustrating. However, in case that happens to...

FG, States, LGAs share N528.39bn FAAC allocation in Jan 2021

The Federation Account Allocation Committee (FAAC) disbursed the sum of N619.34bn to the three tiers of government in December...

List of Guaranty Trust Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is...
- Advertisement -

Zenith Bank Plc posted a 5% topline growth in its recently released full-year 2020 result. Net interest income grew YoY by 12% due to a steep decline in interest expense. Non-interest revenue increased YoY by 12% due to FX revaluation gains.

The group’s total operating cost rose YoY by 10% due to exchange rate and inflationary pressures during the period. Profit before tax (PBT) grew by 5%, and profit after tax (PAT) increased by 10% due to a lower effective tax rate.

The group posted an EPS of N7.34k in FY 2020 (FY 2019: N6.65k) and declared a final dividend of N2.70k (FY 2020 dividend: N3.00k; FY 2019 dividend: N2.80k). The dividend qualification date is March 8, 2021, and the payment date is March 16, 2021.

Zenith Bank Plc - Resilient Earnings Profile Amid Macroeconomic Headwinds Brandspurng

Competitive assets pricing amid a low yield environment impacted interest income

Interest income grew by 1% YoY from N415.56n to N420.81bn in FY 2020 despite the significant surge in interest yielding assets. Interest-earning assets increased by 29% from N4.96trn in FY 2019 to N6.38trn in FY 2020, but interest income for the period grew at a slower pace. The slow growth in interest income was due to the low-interest-rate environment in 2020.

- Advertisement -

The group had to reprice its risk assets to 20 stay competitive and invested in risk-free securities at depressed yields. For instance, while the group’s loans and advances spiked YoY by 21% from N2.31trn 12 to N2.78trn in FY 2020, the interest on loans and advances grew by 8% only from 8 N232.95bn to N250.81bn in FY 2020.

Also, while investment in treasury bills surged by 59% from N991mn to N1.58trn in FY 2020, interest on treasury declined by 34% YoY from N81.11bn to N53.80bn in FY 2020. Overall, the low-yield environment and competitive asset pricing dampened interest income growth in 2020.

Rebalancing of funding mix amid low-interest environment improved cost of funds

On the other hand, interest expense declined by 18% YoY from N148.53bn to N121.13bn in FY 2020, driven by the low yield environment. The group seized the opportunity to rebalance its deposit mix to cheaper funds.

Specifically, customers’ deposits on savings and current account spiked YoY by 88% and 50%, respectively, in FY 2020, improving the group’s CASA ratio to 78% in FY 2020 (FY 2019: 68%). As a result, the group’s customers’ deposit increased YoY by 25% from N4.26trn to N5.34trn in FY 2020.

- Advertisement -

But, interest cost for the period declined. The reduction in interest expenses was due to a 41% and 38% YoY decrease in interest on borrowed funds and lease, as well as time deposits, respectively.

Interest on borrowed funds and lease declined from N67.95bn to N40.07bn in FY 2020, and the interest cost on time deposits decreased from N47.33bn to N29.27bn in FY 2020, as the group paid down on some of these expensive funding sources.

Read Also:  Equatorial Guinea Speeds Up Year of Investment Drive with Nigerian Investors

Consequently, the group’s cost of funds improved by 90bps to 2% in FY 2020 (FY 2019: 3%). As a result, net interest income grew by 12% YoY to N299.68bn in FY 2020 (FY 2019: N267.03bn).

However, due to the low-interest-rate environment, which had a more profound impact on assets return, the group’s net interest margin contracted by 30bps to 8% in FY 2020.

FX revaluation gains drove growth in non-interest revenue

- Advertisement -

Non-interest grew by 12% YoY from N246.69bn to N275.64bn in FY 2020, driven by FX revaluation gains. The group recorded an FX revaluation gain of N43.44bn in FY 2020 (FY 2019: N11.54bn) arising from the translation of its foreign assets following the devaluation of Naira. Also, trading income grew YoY by 3% from

Read Also:  Presidency Launches App to Drive Ease of Doing Business

N117.80bn to N121.68bn in FY 2020. However, net fees and commission income declined markedly by 21% from N100.11bn to N79.33bn in FY 2020 due to regulatory induced reduction in banking fees.

Overall, the contribution of non- interest income to the group’s total revenue increased from 37.2% in 2019 to 39.6% in 2020. Thus, improving the diverse revenue base of the group.

Inflationary pressure and heightened regulatory cost bloat total operating cost

Total operating expenses increased YoY by 10% from N231.83bn to N256.03bn in FY 2020. The increase was primarily due to naira devaluation during the period. As a result, the group incurred a higher cost on FX denominated transactions such as the IT cost.

Information technology (IT) cost spiked by 108% from N9.85bn to N20.44bn in FY 2020. Aside from the FX impact, the group increased investment in cybersecurity following the work from home policy induced by the pandemic.

According to management, they wrote off most of the IT cost in 2020 against the usual practice to spread it over three years. Also, fuel and maintenance cost rose YoY by 23% due to energy and FX price adjustment.

On the other hand, NDIC premium and AMCON premium rose by 12% and 8%, to N14.41bn and N30.95bn in FY 2020. Consequently, the group’s cost to income ratio increased from 49% in 2019 to 50% in 2020.

Historical Performance

Zenith Bank…Strong Top And Bottom Lines, Boosted By Growth In Non-interest Revenue brandspurng
Source: Company accounts, WSTC Research


We note the Zenith Bank’s top and bottom-line growth despite the challenging macroeconomic environment exacerbated by the COVID 19 pandemic. However, the relative impressive performance in 2020 was on the back of FX revaluation gains.

As we advance, however, we do not expect these gains to reoccur in the near term. We expect improved assets yield as interest rates normalise in 2021. We also expect increased transaction volume as the economy recovers.

Overall, we have a forward EPS of N7.45k on the stock with a fair value estimate of N25.54k per share. At the current market price of N25.45k, we believe that the stock is fairly priced.

And thus, we recommend a HOLD.

- Advertisement -
Zenith Bank…Strong Top And Bottom Lines, Boosted By Growth In Non-interest Revenue - Brand SpurZenith Bank…Strong Top And Bottom Lines, Boosted By Growth In Non-interest Revenue - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

- Advertisement -


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Zenith Bank…Strong Top And Bottom Lines, Boosted By Growth In Non-interest Revenue - Brand SpurZenith Bank…Strong Top And Bottom Lines, Boosted By Growth In Non-interest Revenue - Brand Spur

Latest News

Syngenta, WACOT Partner To Boost Nigeria’s Food Security

WACOT Limited, one of Africa’s leading food and agro-processing companies, has partnered with a global agritech company, Syngenta. This would...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -Zenith Bank…Strong Top And Bottom Lines, Boosted By Growth In Non-interest Revenue - Brand SpurZenith Bank…Strong Top And Bottom Lines, Boosted By Growth In Non-interest Revenue - Brand Spur