A foreign exchange revaluation gain of over N378 billion enabled Zenith Bank Plc to gallop over the impact of two major rising costs on earnings and lift its bottom line about one and a half times at the end of the third quarter.
The third quarter interim financial report of the bank at the end of September 2023 shows that interest earnings are experiencing the most rapid growth the bank has seen in more than a decade. However, two major cost increases – interest expenses and bad loans – consumed more than all the increase at the end of the third quarter.
Interest expenses rose by 137 percent to about N256 billion at the end of the period, far ahead of interest earnings and margins got the squeeze. Interest income grew by 71.7 percent year-on-year to a new peak at almost N671 billion at the end of the third quarter, already ahead of the 2022 full-year figure of N540 billion.
Pressured by the incursion of interest expenses, net interest income grew at a slower pace than interest earnings at about 47 percent to N415 billion at the end of the third quarter.
The second major cost incursion came from an upsurge in net loan impairment charges, which jumped more than five times year-on-year from N37 billion to N201 billion at the end of September 2023.
The figure is already well above the N123 billion full-year charge-offs on bad loans the bank made in 2022. The bank’s loan loss charges are surging forward for the second year after advancing by 105.7 percent at the end of last year.
The bloated charge-offs on bad loans consumed more than all the increase in net interest earnings, which led to a drop of 16.5 percent in net interest earnings after loan impairment charges to N205.2 billion at the end of the third quarter.
The windfall from foreign exchange revaluation however provided an unusual strength that enabled the bank to overwrite the drop in net interest income after loan impairment charges and keep the cost pressure under cover.
Propelled by the foreign exchange gain, other income multiplied about 20 times from N20.5 billion to over N400 billion over the period.
The foreign currency revaluation gain had multiplied more than 34 times from N11 billion in the same period last year to over N378 billion and provided the spur for outstanding revenue growth that Zenith Bank recorded at the end of its nine months of operations in September 2023.
The bank closed the third quarter trading with a record gross income of over N1.3 trillion – an unprecedented jump of 114 percent year-on-year. The nine-month revenue figure stands at 40.6 percent above the 2022 full-year gross earnings figure of N945.6 billion.
Reinforcing the high growth in other income is some cost savings from operating expenses, as total operating costs grew at a moderate rate of 20.4 percent to N307 billion at the end of the third quarter.
The slowdown lowered the operating cost margin from 40.6 percent in the same period last year to 23 percent at the end of the third quarter.
This means the bank uses a much lower average operating cost to generate the naira of its revenue – the lowest operating cost margin for Zenith Bank in more than a decade.
Conversely, its net profit margin improved from 28.1 percent to 32.7 percent over the same period.
Zenith Bank closed the third quarter operations with an after-tax profit in excess of N434 billion, which measures almost one and half times above the corresponding third quarter profit figure of N174 billion in 2022 and 94 percent above the full-year figure of nearly N224 billion in the prior financial year.
The bank also closed the third quarter operations with a much-expanded balance sheet of over N18 trillion. The figure represents an increase of about N6 trillion in asset base from the closing level of N12.3 trillion in 2022.
The bank’s earnings per share rose from N5.55 to N13.82 over the review period – already well above the full-year figure of N7.13 in 2022.
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