Zenith Bank Plc is seeing a slowdown in after-tax profit growth for the second year at 5 per cent to N111.4 billion at half year ended June 2022. This is the slowest profit growth record for the bank in many years, slowing down further from 10.4 per cent growth in 2020 and 6.1 per cent improvement in 2021 full-year operations.
The bank’s management isn’t finding any room for cost-cutting this year, as the cost of funds, which afforded cost savings last year, is leading cost increases so far. The bank’s audited accounts for the half-year operations show that interest expenses, which have been dropping for the most part of the past five years, have reversed to an upward run.
At about N57 billion at the half year, interest expenses grew by 29.5 per cent year-on-year compared to a drop of about 12 per cent at the end of 2021. The increase is however partly remedied by an upturn in interest earnings for the first time since 2017.
At N241.7 billion at the half year, interest income rose by 18.5 per cent year-on-year, pushing up from flat growths in the past two years and declines in the preceding two years. The faster growth in the cost of funds encroached on interest income and reduced the improvement in net interest earnings to 15.5 per cent to close at N184.7 billion for the six months of trading.
Net loan impairment expenses followed on the side of rising costs at an increase of 26.9 per cent year-on-year to N25 billion. This is a sustaining strong growth in credit loss expenses the bank has faced since 2019.
Over the three and half years to June 2022, Zenith Bank has recorded credit losses of N148 billion – being revenues thrown off from flowing into the bottom line. This has kept net income after loan impairment charges compressed over the period.
With the upturn in interest income this year, however, net income scurried up from flat growth in 2021 to an increase of 13.9 per cent year-on-year to close at N159.6 billion at the half year. The bank looks quite good to record the strongest growth in net income in four years this year at the current growth rate.
The third element of the rising cost tripod of the bank is operating cost, which grew by over 19 per cent to about N179 billion at half year. This is the fastest growth in operating expenses for the bank since 2018, beating an increase of 17 per cent in gross earnings – which amounted to N404.8 billion for the bank for the six months of operations.
The improvement in gross earnings is accelerating from 9.9 per cent in 2021 and represents the best growth record for the bank since 2017. This is despite a drawback in non-interest income with a plunge in other income from N19.8 billion in the same period last year into a loss of N655 million at the end of June 2022.
Strong improvements in net fee/commission income and trading gains enabled the bank to grow non-interest income by 17.5 per cent to N149 billion over the review period.
All the three key cost components of the bank grew ahead of revenue, which eroded margins and hindered profit growth over the period. The operating cost margin increased from 37.8 per cent at the end of 2021 to over 44 per cent at the half year, the highest cost margin for the bank in 10 years.
Conversely, the net profit margin went down from 30.7 per cent in the same period last year and 31.9 per cent at the end of 2021 to 27.5 per cent at the end of June 2022 – the lowest net profit margin for Zenith Bank in five years.
The summary of the bank’s earnings story for the first half of the 2022 financial year is its inability to prevent costs from growing ahead of improving revenue.
Zenith Bank closed the half year with a balance sheet of over N10 trillion, comprising mainly customer loans and advances of N3.5 trillion, treasury bills of over N2 trillion, and cash and bank balances of N1.6 trillion. Other key assets are investment securities of N1.5 trillion, due from other banks of N632 billion, and pledged assets of N326 billion.
Asset expansion is financed mainly by an injection of N681 billion in customer deposits over the six months of the year to N7.2 trillion at the end of half year.
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