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ZENITH BANK PLC Q1'20 Earnings Release - First quarter profits boosted by FX gains

First quarter profits boosted by FX gains                                                   

ZENITHBANK recently released its Q1’20 earnings, reporting an 8% y/y growth in Gross Earnings to ₦166.8 billion (Vetiva estimate: ₦169.8 billion). This came despite a 7% y/y decline in Interest Income to ₦114.3 billion (Vetiva estimate: ₦110.2 billion). The earnings improvement was driven by a 61% y/y increase in Non-Interest Income to ₦52.5 billion (Vetiva estimate: ₦59.8 billion), the result of a 339% spike in FX revaluation gains to ₦14.7 billion. We note that this FX revaluation gain was observed across the industry in the aftermath of the Naira devaluation. Also, despite an 89% y/y rise in Provisions to ₦3.9 billion (Vetiva estimate: ₦4.7 billion) and Opex growth of 20% y/y to ₦71.2 billion, the bank was able to maintain bottom line at ₦50.5 billion (Vetiva estimate: ₦52.6 billion).                                                        

Non-Interest Income to support FY’20 profits

In the first quarter of the year, the poor yield environment contributed to the decline in ZENITHBANK’s Interest Income. Despite the bank recording a 16% y/y improvement in income from loans, these gains were offset by a 64% y/y decline in Income from T-Bills. Going forward, we expect further declines in Interest Income, especially in the latter half of Q2 and early in H2’20, due to the expected increase in loan defaults and persistently weak yield environment. On the other hand, the bank’s impressive Non-Interest Income growth of 61% y/y provides a potential upside for Gross earnings, as FX revaluation gains and trading income are expected to significantly boost the bank’s performance in FY’20.