By Omoh Gabriel
When in 2004, the CBN asked Nigerian banks to put in place a management succession plan, many banks did not take it seriously. Zenith Bank in its usual proactive approach to banking puts in place a team of high caliber managers. One of the third generations of managers Zenith Bank lined up in its succession plan, who took over from Godwin Emefiele now CBN Governor is Peter Amangbo.
Zenith Bank’s half year 2016 results which were published weekend attest to the fact that investors who put their money in the bank are in safe hands. Shareholders in the bank will be getting a 25 kobo per share as interim dividend at a time when most companies listed on the Nigerian Stock Exchange are posting losses. The bank however, is not insulated from the crash of crude oil prices which has almost brought the Nigerian economy to its heels.
The economic recession resulting from the crash has had a solitary effects on the operation of Nigerian banks as Zenith bank result showed a slight decline in the bank’s gross earnings of N192 billion as against the N213.5 billion it earned in the second first half of last year.
The management of the bank has made spirited effort to maneuver the affairs of the bank through a tough and turning financial environment. Income from interest charged on loans and advances improved marginally from N160 billion in June 2015 to N165.6 billion in June 2016 which is to be expected in a period of economic recession. Interest and similar expenses stood at N49.6 billion as at June 2016 a decline from the N59.2 billion expenses incurred on interest as at June 2015.
As a result, Net Interest Income has a positive result of N116 billion over and above the N100.8 billion the bank earned in June 2015. This however, declined to N104 billion after provisions were made for impairment losses on financial assets.
The Profit Before tax stood at N56 billion lower than the N67.7 billion achieved in June 2015. Zenith Bank’s Profit After Tax thus stood at N40billion while other comprehensive income from the group stood at N44.1 billion. It thus made a profit before making provision for non performing loans, depreciations and others of N56.964billion during the operating period.
As required by law it made Provisions of N11.655billion against nonperforming loans and the sum of N38.89billion was the total cost of running the bank during the period, while personnel cost amounted to N31.745 billion. On removing the provisions made and the cost of running the day to day affairs of the bank including staff salaries and allowances, the bank made a profit before tax during the period of N56.016 billion.
The decline in the profit before provisions is as a result of the marginal growth in loans and advances and the decline in non-interest income. The latter stood out more as the magnitude of the declines show, due to low trading income, and to a lesser extent, fees and commission.
The bank paid the sum of N15.98billion as taxes to government at the corporate tax rate of 41.4 per cent. It however made some gains of N30.2billion from other comprehensive income net of tax which swelled its profit after tax. The bank non performing credit in the second half of 2016 stood at N35.4billion and its ratio of non performing loans to total loan portfolio is just 1.64 per cent making it one of the best in the industry.
This is for above the 8 per cent industry average and regulatory requirement of ratio of 5 per cent. The bank’s total loans and Advances as at June 2016 had a record of N2.114 trillion as against the N1.849 trillion on its books as at end of December 2015. Zenith total Assets grew from N3.75trillion in December 2015 to N3.952 trillion in June 2016. Its shareholders fund recorded a figure of N542 billion as against the figure of N546 billion in June 2017.
This again puts the bank on a comfortable footing as its capital adequacy ratio is above the regulatory requirement. Going by these financial indices the bank’s earning per share stood at 126 kobo while it proposed an interim dividend of 25 kobo per share. This will gladden the hearts of shareholders at a time when most companies are returning negative results.
In a period where most of its peers are declaring less than average results the bank performance indicators showed it operated profitably though the year on year difference in its Profit Before Tax was 20 per cent lower when compared to its previous year’s record due to the prevailing economic difficulty the country in passing through.
Zenith, which had prudently invested in its off shore subsidiaries is now benefiting from the investment as the boost to the PAT is observed to have came from foreign exchange-related gains in the light of the recent introduction of the flexible exchange rate that resulted in the devaluation of the naira.
In a note to investors after the result was released, FBN Capital said “As with several of the banks which have reported second quarter results, the impact of the naira devaluation has proved significant, distorting the bottom line. Further devaluation since end-June implies that more gain is likely for Zenith when it reports third quarter results.
However, focusing on the underlying results, the run-rate of the PBT implies that the bank is running in line with management’s full year PBT guidance of N126billion. The only other point that will give the market some concern is the loan loss provisions line. Although we do not believe the quarter to quarter increase in provisions (relative to revenue delivered) justifies the concern, we understand why it will draw some scrutiny.
“The loan loss provision figure of N11.7 billion was significantly higher than our N4.4billion estimate. Having said that, profit before provisions beat our forecast by 16 per cent, and in naira terms by more than the difference we see between the reported N11.7billion and our N4.4billion estimate.
Zenith is proposing an interim dividend of 25kobo as we expected. On the back of these results, we would expect consensus full year PBT to remain broadly unchanged. Year to date, Zenith shares are up 11 per cent as against All Shares Index ASI’s -4.7 per cent. We rate Zenith shares Outperform”.