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ZENITH BANK PLC H1'20 Earnings Release - Profits surge amid provisions spike

Profits surge amid provisions spike                                                

Mild improvements eclipsed by profit hike

Yesterday, ZENITHBANK released its H1’20 earnings, reporting a 4% y/y growth in Gross Earnings to ₦346.1 billion (Vetiva estimate: ₦336.240 billion). This was mainly driven by a 10% y/y growth in Non-Interest Income to ₦129.3 billion (Vetiva estimate: ₦114.8 billion), the result of a 240% jump in currency revaluation gains to ₦22.0 billion. Meanwhile, Interest Income improved by only 1% y/y to ₦216.9 billion, although Interest Expense moderated 17% y/y to ₦59.5 billion, thanks specifically to a 50% y/y decline in interest paid on borrowed funds. This led to a 10% y/y increase in Net Interest Income to ₦157.4 billion (Vetiva estimate: ₦155.9 billion). On the other hand, Opex grew 11% y/y to ₦148.5 billion, occasioned by increases in IT costs (+39% y/y), Donations (+171% y/y) and AMCON Levy (+8% y/y) among others.

                                                           

Foreign currency positions prove vital in Q2

We had anticipated an improvement in Non-Interest Income to offset the likely decline in Interest Income in Q2. As expected, Income from investments, specifically currency revaluation gains of 180% q/q drove a 46% q/q growth in Non-Interest Income. Going forward, whilst we do not anticipate further devaluation of the local currency, we foresee more support from this line item in H2, driving our improved forecast of ₦258.5 billion to offset the decline in Interest Income. Furthermore, we expect H2’20 Opex to revert to Q1 run rate, thus we raise our FY’20 ₦289.1 billion (Previous: ₦271.1 billion). However, we do expect provisions to remain somewhat elevated in the second half albeit at a lower rate; hence we raise our forecast for provisions to FY’20 ₦45.2 billion (Previous: ₦37.7 billion).