ZENITH BANK PLC 9M'19 Earnings Release - Strong Loan Growth Boosts Topline Earnings

Strong loan growth boosts topline
Zenith Bank released its 9M’19 results during the week, reporting modest y/y growth of 4% in Gross Earnings to ₦491.3 billion (Vetiva estimate: ₦491.6 billion) and a 5% rise in PAT to ₦176.2 billion (Vetiva estimate: ₦131.4 billion). The bank’s 9M numbers came in line with our estimates, with the main deviation coming from Zenith’s Q3 tax spend- historically, ZENITHBANK incurs its lowest taxation during the quarter.            

Eurobond redemption supports growth in Net-interest Income
During the 3-month period, ZENITHBANK garnered ₦107.3 billion (Vetiva Estimate: ₦105.0 billion) in interest income, 17% more than it recorded in Q2’19, largely due to q/q increments in income from loans (+6%) and treasury bills (+100%). The accretion in core banking income was occasioned by a 13% q/q expansion in loan book despite a challenging macro-economic backdrop that has seen peers struggle with income from loans and investments on a q/q basis. In the same vein, Net Interest income surged 28% q/q to ₦107.3 billion (Vetiva Estimate: ₦105.0 billion) as interest expense dipped marginally q/q following a 5bps moderation in cost of funds to 2.95%. This was largely due to the bank’s reduced spend on borrowings – we recall that ZENITHBANK redeemed its second tranche $500 million Eurobond in Q2’19 and made an early redemption of part of the outstanding following a 79% subscription rate of its tender offer.                

Cost optimization drives PBT growth
Although ZENITHBANK achieved a 30% expansion in 9M’19 Non-interest income to ₦169.3 billion (Vetiva estimate: ₦171.8 billion), it recorded a 38% q/q drop to ₦52.3 billion (Vetiva estimate: ₦62.1 billion) in Q3’19 due to q/q declines in net fee and trading income. It is noteworthy to mention that ZENITHBANK had a relatively strong Q2 performance from these income lines. The q/q dip in non-interest income spurred a 12% q/q contraction in Operating income to ₦124.5 billion (Vetiva estimate: ₦129.9 billion). That said, the bank made significant progress in cost optimization, reporting a 26% q/q decrease in Operating expenses to ₦55.4 billion, translating to a cost-to-income ratio of 50.1% (Q2’19: 53.2%) and a 19% q/q rise in PBT to ₦64.5 billion (Vetiva estimate: ₦51.8 billion).