Zenith Bank, Nigeria’s second most valuable lender with a market value of around N565 billion released its half-year result for the period ended 30th June last week.
Interestingly, the tier one lender is the most profitable so far in H1 with profit-after tax and total assets of N88.9 billion and N5.9 trillion as at mid-year 2019.
These are the key takeaway from the recently announced results.
Declining yield environment hurts interest income
Interest income of Zenith bank contracted albeit at slower pace of 6 percent to N214.6 billion in H1 2019.
This is not surprising as cash earned from loans and advances account for more than half of total interest income.
The increase in money earned on placement with banks and discount incomes and other investment securities such as treasury bills and government bond, couldn’t save interest income from falling.
The 6 percent decline in interest income was driven by a 21 percent plunge in loans and advances to customers.
Analysts say the steeper decline in interest income relative to decline in loans suggests that yields on risky assets are trending downwards.
The bank however, devised other ways to generate earnings and this justifies the 140 percent surge in interest income on bank placement and extension of interest base to promissory notes and commercial papers.
Meanwhile, interest expense of the tier-one lender further trended south to on account of its profound improved funding mix and excellent treasury management skills.
Retail footprint drives profit
Zenith Bank posted some 8 percent growth in post-tax profit in the first half of this year on the back of deepened retail footprint, leading to a surge in the group’s e-banking income and further reflecting progress made in its retail banking initiatives.
Although net interest income fell 7 percent in half-year 2019 to N142.5 billion, the tier-one lender had a lot to cheer about as non-interest spiked 24 percent to N109.73 billion largely driven by a 170 percent growth to N27 billion in fees from electronic products. This contributed 43 percent to fee and commission income as against 22 percent share it recorded in half-year 2018.
The significant boost in non-interest income largely translated to N331.6 billion gross earnings recorded by the bank, which represents a 3 percent increase from N322.2 billion garnered in the corresponding period of 2018.
Retail footing to strengthen on LDR Slip
After a slip-on Loan-to-Deposit ratio in mid-year, Zenith Bank is planning to up its game and increase its presence in Nigeria’s retail banking space.
The bank which is Nigeria’s second-largest by market value reported its LDR at 51.24 percent in the half-year period on the back of a 3.2 percent growth in customer deposit to N3.81tn while loan book has shrunk by 3.2 percent since the start of the year.
The big lender is intent on meeting up with the 60 percent regulatory benchmark for loan issuance ahead of September 30, the deadline set by the Central Bank of Nigeria.
Zenith’s mid-year LDR which is 8.8 percentage points below 60 percent minimum of the Central Bank of Nigeria the bank at risk of losing part of its funds if the lending gauge is not improved.
Management plans going forward/ full-year outlook
For the remaining half of the year and the bank’s prospects for the full-year 2019, the lender plans to continue to consolidate its leadership in the corporate space while its retail banking drive would be sustained unabated.
In the retail banking segment, the tier-one financial institution targets growth in its retail business which would be achieved through the deployment of innovative products in mobile banking, internet banking, and cards services.
Furtherance to the federal government’s resolve to boost the agricultural sector in the country which is believed to hold a number of opportunities in the areas of funding, job creation and indeed food security to Africa’s most populous nation, the bank would be leveraging the opportunity by putting in place Various Funding Schemes to ensure that the country’s economy is diversified.
These schemes include Commercial Agriculture Credit Scheme (CACS) and Nigeria Incentive-Based Risk Sharing for Agricultural Lending (NIRSAL). Others are Seed and Fertilizer Scheme launched for banks to lend at a subsidized rate to local farmers and the value chain for the production of fertilizer.
Going into the last six months of the year, Zenith Bank noted it would take advantage of the Differentiated CRR scheme to lend part of its CRR to manufacturing and agricultural-related projects.
OLUWASEGUN OLAKOYENIKAN, ISRAEL ODUBOLA & SEGUN ADAMS
