Zenith Bank closed its half year operations for the 2017 financial year with a more robust earnings picture than it has recorded for many years. Defying economic recession and late budget approval, the bank is showing accelerating growth in earnings for the second year. Its gross earnings towered a clear 77% above the corresponding figure last year and profit soared 112% year-on-year at the end of June, 2017.
There is a strong growth of 44% in interest income – which accounts for 70% of gross earnings despite that the bank’s huge portfolio of loans and advances to customers declined from the closing figure last year. The main revenue growth driver so far is non-interest income led by other operating income and trading income.
Two major expenditure lines – interest expenses and impairment charges for credit losses appear to be out of control this year. Loan loss expenses virtually tripled year-on-year and interest expenses surged up by more than 127% over the same period. The increases caused a drop of over 14% in net interest income after impairment charges on financial assets. This was however more than compensated by the major advances of other operating income, trading income and a decline in income tax expense.
Gross earnings amounted to N380.44 billion at the end of half year operations, which is an increase of 77% over the corresponding earnings figure in 2016. Interest income amounted to N262.26 billion, an increase of 44.6% year-on-year. Its contribution to gross earnings declined sharply from 84.4% to less than 70% over the review period.
Full year outlook indicates revenue in the region of N840 billion for Zenith Bank in 2017. This will be an increase of over 65% over the revenue figure of N508 billion the bank posted at the end of 2016.
Interest expenses advanced by 126.7% to N123.30 billion over the review period compared to the 44.6% increase in interest income. That permitted only an increase of 9.4% in net interest income, which stood at about 139 billion at the end of half year.
A further strain came from impairment expenses on financial assets, which rose three times to stand at N42.40 billion at the end of June. That is already well ahead of the loan loss expense of N32.4 billion the bank made in all of 2016. Credit loss expenses more than doubled last year and looks likely to double again in the current year.
A resulting drop of 14.4% in net interest income after impairment loss on financial assets to N96.56 billion means all the increase in interest income was insufficient to meet the increases in interest and loan loss expenses. A strong growth in non-interest income however provided more than a compensating effect on the bottom line during the period.
Growth in non-interest income was led by other income, which multiplied more than four times to N15.11 billion at the end of June. Trading income from foreign exchange and treasury bills followed, springing up from a loss of N864 million in the same period last year to over N65 billion at the end of half year.
Operating cost grew by almost 33% to N122.56 billion year-on-year at the end of June compared to the increase of 77% in gross earnings. Operating expenses therefore moderated during the period with the cost margin dropping from 43% to 32.2% at the end of June. This means the bank expended about 32 kobo to generate a naira of revenue in the first half of this year compared to 43 kobo in the same period last year.
The strong growth in non-interest income and the moderation of operating cost provided the strength for a big leap in profit the bank achieved at the end of half year operations. After tax profit advanced by 112.3% to N75.32 billion over the review period, the strongest profit growth the bank has recorded in many years.
Based on the growth rate seen in the first half and a stronger second quarter expectation, after tax profit is projected to be in excess of N163 billion for Zenith Bank at full year. That will be an increase of 26% over the profit figure of N129 billion the bank posted at the end of 2016. Profit growth accelerated last year and is speeding up further in the current year.
The bank’s audited accounts for the six months ended June shows a leap in earnings per share from N1.13 in the same period last year to N2.40. The full year outlook indicates earnings per share of N5.20 for Zenith Bank in 2017. The bank earned N4.12 per share in 2016 and paid a total cash dividend of N2 per share. It has announced an interim dividend of 25 kobo per share for the half year trading in 2017. The bank’s register of shareholders closed on 21st August and payment is scheduled for 25th August, 2017.
