FREE

ZENITH BANK PLC (ZENITHBANK) Trading gains, fees and commissions boost earnings

ZENITHBANK released its Audited FY’19 earnings, reporting a 5% y/y growth in Gross Earnings to ₦662.3 billion (Vetiva estimate: ₦648.5 billion), despite a 6% y/y decline in Interest Income to ₦415.6 billion. The earnings improvement was driven by a 30% y/y increase in Non-Interest Income to ₦246. 7 billion (Vetiva estimate: ₦205.5 billion), the result of a 47% spike in Trading Income and a 24% y/y jump in Fees and commissions. Despite a 31% y/y rise in Provisions to ₦24.0 billion (Vetiva estimate: ₦20.4 billion), tame Opex growth of just 4% y/y supported the bank to achieve modest bottom line growth, with an 8% y/y growth in FY PAT to ₦208.8 billion (Vetiva estimate: ₦207.1 billion) and an EPS of ₦6.65 (FY’18: ₦6.15).

 

Yield environment to pressure Net Interest Margins in FY’20

During the final quarter of 2019, yields moderated significantly, leading to a repricing of interest bearing assets as well as a drive for cheaper retail deposits. This led to a 13% q/q decline in Interest Income, driven largely by weaker yields on short-term securities. With yields expected to remain largely suppressed in 2020, we foresee only modest growth in Interest Income, from higher income on loans and advances booked in the previous financial year, and thus, we expect Net Interest Margins to remain pressured, but stable through the year. Meanwhile, the bank expanded its loan-book by 22% y/y while keeping cost of risk manageable at 1.1% and reducing its NPL ratio to 4.3% (FY’18: 5.0%). Notably, the bank’s Nigeria arm was able to meet the minimum LDR requirement (68.6%), while the LDR for the group is at 57.8%. We do not expect the bank to grow its loan book as aggressively in 2020 and foresee modest loan growth of 5% y/y. Furthermore, we expect the bank’s NPLs to moderate 50bps and expect lower provisions (-28%) y/y due to the modest loan growth and focus on asset quality.