ZENITH BANK PLC H1'21 Earnings Release - Profits expected to grow 8% y/y on strong NIR

Profits expected to grow 8% y/y on strong NIR                                                  

ZENITHBANK recently released its H1’21 financial results, posting flat Gross earnings of ₦346 billion. This came amidst a 6% y/y decline in Interest Income to ₦204 billion, although Net Interest Income actually grew by 2% y/y to ₦160 billion, thanks to a 26% y/y decline in Interest Expense after cost of funds moderated to 1.3% in the period (H1’20:2.2%). However, Non-Interest Revenue (NIR) grew by 9% y/y to ₦127 billion, mainly as a result of improved revenue from fees on electronic products which grew by 91% y/y, as well as similarly impressive growth in account maintenance fees (+51 y/y) and agency & collections (+50% y/y).

Cost-wise, the bank reported a 17% y/y decline in loan loss provisions to ₦20 billion; however, it is worth noting that Q2 provisions were actually 314% higher than in Q1. Furthermore, the bank reported a 10% y/y growth in Operating expenses to ₦150 billion, due to a 23% y/y increase in AMCON charges, as well as inflationary pressures on costs. This yielded a cost-to-income ratio of 56.1% for the H1 period, up from the 54.3% reported in H1’20. Consequently, the bank reported a 3% y/y improvement in PBT to ₦117 billion and a 2% rise in PAT to ₦106 billion. This gave an EPS of ₦3.38, while the bank also declared interim dividend of ₦0.30/share (H1’20: ₦0.30). Despite the slight rise in profits, the bank’s ROAE and ROAA deteriorated to 19.9% and 2.6% respectively, due to a 12% y/y growth in the bank’s balance sheet.                                            

Strong NIR, lower Opex to boost FY profits

Looking forward to H2, we expect macro factors to affect the bank’s performance. Firstly, as we do not anticipate a significant change in monetary policy by the CBN, we expect the bank to maintain its low cost of funds, with a FY’21 expectation of 1.4% which gives us an Interest Expense forecast of ₦88 billion. Meanwhile, our Yield on Assets (YoA) forecast of 6.2% (FY’20 7.5%) gives us a FY’21 Interest Income expectation of ₦408 billion for a Net Interest Income estimate of ₦320 billion (2020: ₦300 billion).

For Non-Interest Revenue, we expect the bank to continue to make strides in the areas of fees and commissions, thus we forecast FY’21 NIR of ₦262 billion (FY’20: ₦251 billion). "