Zenith Bank Plc N244.56 Billion PAT: Implications For Shareholders, Banking Sector

Zenith Bank Plc just recently released its December 31, 2021, financial report with bottom line growth in key parameters of assessment.

The financial giant recorded year-on-year growth in its profit before tax (PBT) and profit after tax (PAT) by 9.6% and 6.1% to close at N280.37 billion and N244.56 billion, respectively.

Revenue rose even though the country didn't have a business-friendly environment. The non-core business segments helped.

Key Insight of the Report:

• The bank's gross earnings increased by 10.5%, from N703.5 billion in 2020 to N777.62 billion in 2021.This reflected the increased contribution of non-traditional banking sources of income to the bank's financial statement.

• Interest income, which comes from transaction and deposit fees, monthly account service charges and other components, grew by 1.6% from N420.81 billion in 2020 to NGN427.60 billion. This growth was supported by the income from loans and advances to customers, which grew by 16.5%, from N250.81 billion in 2020 to NGN292.22 billion.

• Following the CBN's goal to boost sectoral funding, the bank's growth in loans and advances was in line with the CBN's Loan-to-Funding Ratio (LFR) initiative.

• Despite a 14.7% decline in loans and advances to other banks, a +20.8% increase in customer loans and advances aided the drive to N3.36 trillion this year, up from N2.78 trillion in 2020.

• Interest expense, in a general perspective, declined by 11.8% from N121.13 billion in 2020 to N106.79 billion, which reflected lower interest costs on deposits from customers, which dropped by 25.6% from N81.06 billion to N60.32 billion. This decline is the result of the bank’s strategy of increasing the number of its current and savings accounts (CASA) book. This figure grew by 93%, as against 93.9% in 2020.

• Non-interest income (NII) increased by 22.8 percent year on year to N309.04 billion. Investment securities and net fees and commissions revenue helped the sector grow. As more people use digital banking platforms, the industry is making more money.

• The increase in operating expenses was also significant, reflecting the country's rising prices for everything, resulting in higher uncontrolled regulatory expenses.As a result, opex grew by 13.1% from N256.03 billion in 2020 to N289.53 billion, with most of the pressures coming from the AMCON levy (+22.5% increase) and other operating expenses (+22.0% increase).

• On the basis of the EPS of N7.78 (+6.1% 2021FY vs 2020FY), the bank’s board proposed a final dividend of N2.80 per share, which equates to a dividend yield of 10.3% based on the closing price of N27.10/s as of February 28th, 2022.

Implications for shareholders

• The bank's proposal to pay this new dividend of N2.80/share shows financial strength and strengthens shareholders’ confidence in the board's management style.

• The presentation of the financial report for FY2021, shows an important direction of where the income source of the bank will be coming from, taking into cognizance the difficult business environment the bank is in.

• The report makes it possible for shareholders to air their views about areas of challenges they would like the management to address during their upcoming Annual General Meeting (AGM).

• The payment of dividends also presents an opportunity for capital re-appreciation for the banks’ stocks before the AGM meeting. This offers a good chance for secondary market players to make quick profit from the growth in share price value.

Implications for the Banking industry

• Zenith Bank Plc FY 2021 financial results give the entire banking industry, especially competitor banks, an opportunity to implement last-minute measures to improve their bottom line, i.e., their PBT and PAT position.

• The banks' detailed FY2021 financial report enables other banks to identify areas of strength and weaknesses that they can take advantage of to inculcate into their operational practice in order to stay relevant. For example, the bank's income from the digital banking platform increased tremendously. Other banks can see how they can drive growth in this area.

• The banks' FY2021 displays the level of compliance to which the bank has devoted itself, especially as pertaining to CBN guidelines on sectoral financing and others.

• Finally, competitor banks will be hoping to better Zenith Bank Plc's dividend payment of N2.80 per share when they release their full financial statement.