EUR 56.22 For Business Accounts Only

ZENITH BANK PLC 9M'16 - FX revaluation gains boost earnings

• ZENITHBANK reported impressive 9M’16 results following marked Q3 standalone performance. Although the bank’s performance lagged analysts’ forecast in H1 an impressive all round showing across the line items ensured 9M’16 PAT beat both Vetiva and consensus estimates – 47% and 32% respectively. Whilst Net Interest Income moderated 9% q/q as the 46% rise in Interest Expense (largely due to relatively tighter liquidity) overshadowed the modest 7% q/q rise in Interest Income, the huge jump in Non-Interest Income to N61 billion (Q2’16: N18 billion) supported bottom line amidst a better contained impairment expense of N7.6 billion (Q2’16: N11.7 billion).

• We had highlighted in our H1’16 earnings note that the mild FX revaluation gain (H1’16: N2.8 billion) reported by ZENITHBANK was not in line with the trend observed across the industry (GUARANTY: N61 billion FBNH: N52 billion) following the c.41% naira devaluation in June. The trend has however been reversed with the bank reporting a foreign currency revaluation gain of N28.2 billion – reflecting its long exposure to the dollar. Despite the significant ytd rise in risk asset following the currency devaluation, ZENITHBANK can boast of strong capital and liquidity ratios (CAR: 19% and L.R: 55%) coupled with an impressive asset quality (NPL ratio: 2.2%). In line with recent trend, we expect the operating cost pressure to persist and estimate a modest rise in loan loss provision in Q4’16. Finally, we revise our loan growth forecast to 25% (Previous: 18%). Although we note the moderation in margins (NIM: 7.6%) due to the impact of rising cost and currency devaluation driven increase in deposits, we expect the bank’s earnings to remain strong all through 2016 as impressive top line growth continues to support earnings. We revised our target price to N26.12 (Previous: N25.19).