ZENITH BANK PLC H1'22 Earnings Release - PBT grows 11% y/y amid increased impairments

PBT grows 11% y/y amid increased impairments                                                

In its recently released H1’22 financials, ZENITHBANK saw Gross Earnings rise by 17% y/y to ₦404.8 billion, 2% above our estimate of ₦397.4 billion. The improved earnings came about after Interest Income grew 19% y/y to ₦241.7 billion (Vetiva: ₦252.7 billion), thanks to a 21% y/y increase in receipts from loans and advances. Meanwhile, Non-Interest Revenue (NIR) grew 18% y/y to ₦148.9 billion (Vetiva: ₦128.7 billion), after a 44% rise in trading income, specifically from T-bills.  

Conversely, the bank’s Interest Expense went up 30% y/y to ₦56.9 billion (Vetiva: ₦52.9 billion), as the bank reported higher payments on all account types as well as borrowings. Margin-wise, we estimate that Cost of Funds (CoF) advanced 10bps y/y to 1.4%, while Net Interest Margin (NIM) grew 70bps to 7.1%.

On the cost side, Impairment charges rose 27% y/y to ₦25.1 billion, while Opex grew by 19% y/y to ₦178.6 billion; this was driven by a 16% increase in AMCON charges. Overall, the bank posted an 11% increase in PBT to ₦130 billion, while bottom line grew by a more modest 5% y/y to ₦111.4 billion.

Higher MPR, savings costs to dampen NIMs in H2

The hikes in MPR, the first of which came at the end of Q2, had a general impact on ZENITHBANK’s cost of funds. Net Interest Income was 8% below our initial expectation specifically because of higher fees paid out to customers for their deposits, which grew 11% YTD. Despite this, the consistent asset yield on an expanded loan book (+23% y/y) meant that NIMs grew during the period. However, with the implementation of a new minimum saving rate of 30% of MPR (4.2%) and the likelihood of further MPR hikes in coming months, we anticipate a decline in NIMs by the end of the year, albeit slightly offset by higher interest on loans and advances.