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ZENITH BANK PLC (ZENITHBANK) - Strong profitability to persist through Q4 for record FY’20

Mild improvements eclipsed by profit hike

ZENITHBANK recently released its 9M’20 earnings, reporting a 4% y/y growth in Gross Earnings to ₦509 billion (Vetiva estimate: ₦519 billion). This was mainly driven by a 12% y/y growth in Non-Interest Income to ₦190 billion (Vetiva estimate: ₦194 billion), largely due to the significant revaluation gains realized in Q2. Amid this, Interest Income declined 1% y/y to ₦319 billion; however, Interest Expense also moderated 13% y/y to ₦94 billion, causing Net Interest Income to rise 5% y/y to ₦225 billion (Vetiva Estimate: ₦238 billion). Meanwhile, Opex grew 12% y/y to ₦213 billion, a tamer growth than what the bank posted in H2, mainly due to the absence of one-off costs. Furthermore, the bank’s provisions grew 38% y/y to ₦25 billion, thanks to the bank recording only ₦2 billion in provisions in Q3. Consequently, PBT improved by a modest 1% y/y to ₦177 billion, in line with our estimate, while PAT rose 6% y/y to ₦159 billion as expected. This yielded an EPS of ₦5.07 and last twelve months (LTM) ROAE of 22.8%.

 Q3 performance bodes well for Q4 forecast

The bank’s slight improvements in provisions and Opex meant Q3 PAT came in as expected at ₦55 billion. The 94% q/q decline in Provisions to ₦1 billion bodes well for the bank’s provisioning for the rest of the year, with slight economic improvements likely to signal even further reductions in provisions in Q4. Therefore, we lower our FY’20 provisions expectation to ₦30 billion (Previous: ₦45 billion). Furthermore, we expect the bank’s Opex to follow Q3 run rate, thus we lower our FY’20 projection to ₦283 billion (Previous: ₦291 billion). However, Net Interest Income fell short of expectation, as the decline in Interest Income in Q3 was greater than expected, whilst Interest Expense rose q/q unlike other banks as interest payments on savings and deposits remained high despite the lower interest rate environment. Therefore, we have revised our FY’20 Net Interest Income to ₦310 billion (Previous: ₦315 billion).