Zenith Bank Gallops Over Almost N410bn Loan Loss With N229bn Forex Gains In 2023

Zenith Bank Plc rode on the back of net foreign exchange gains that multiplied more than nine times to N229 billion in 2023 to gallop over the biggest loan loss expenses in its operating history.

The net gains on the revaluation of foreign currency-denominated assets and liabilities jumped all the way from N25 billion in the preceding financial year to provide a distant lead in the bank’s triple digit rise in gross earnings in the year.

The audited financial report of the bank for the full year ended December 2023 shows that net foreign exchange gains propelled an exceptional growth of about 584 per cent in other income to stand at N242.6 billion at the end of the year.

The rosy growth in earnings enabled the bank to scale through the thorns of massive net loan loss charges that swelled by over 232 per cent to hit almost N410 billion at full year.

Exceptional strength in earnings in the year was robust enough to absorb rising costs and still propel a tripling of the bottom line to roughly N677 billion for the year – the largest profit basket for shareholders in Nigeria’s banking space in 2023.

Following on the high rise income lines in the year are trading gains on financial assets that advanced by 167 per cent to N567 billion – the most rapid expansion in the income line since 2018.

Interest income comes next on the triple digit growth in earnings at an increase of 112 per cent to launch the bank to the N1-trillion mark in interest earnings much sooner than expected.

It is the most rapid expansion in interest income for Zenith Bank in years, making up for declines and weak growth it has recorded in recent past.

Apart from swollen credit losses, the bank also came under pressure from interest expenses –which grew ahead of interest income at over 135 per cent to N408.5 billion.

The bank has not seen cost of funds grow that rapidly in many years of its operations, claiming as much as 35.7 per cent of interest earnings.

Despite the incursion of interest expenses, net interest income still doubled at over N736 billion at the end of the year – a growth rate unmatched in the records of the bank for many years.

A much bigger pressure however came from the upsurge in net loan loss charges, which surged from N123 billion in 2022 to almost N410 billion in 2023 after more than doubling from less than N60 billion 2021.

The losses on bad loans consumed much of the increase in net interest earnings, which lowered the margin of increase in net interest earnings after loan impairment charges to 34 per cent to close at N326.7 billion for the year.

This means bad loan charge offs claimed 55.6 per cent of net interest income for the year, rising from 33.6 per cent in the preceding year.

Interest earnings for the year net of costs and charges therefore lacked the force to propel the tripling impact registered in the bottom line.

The unusual strength came from the windfall from foreign exchange revaluation as well as trading income, lifting the 34 per cent increase in net interest income after the loan impairment charges to over 202 per cent leap in after tax profit.

The two income lines account for much of the total non-interest earnings of nearly N919 billion for the year as well as the growth of 141 per cent in non-interest income.

Reinforcing the strong growth in non-interest income is substantial cost saving from operating expenses – which stretched out profit margin.

Total operating cost moderated at an increase of 32 per cent to N449.5 billion against an unprecedented jump of over 125 per cent in gross earnings to N2.1 trillion.

Operating cost margin dropped from 35.9 per cent in 2022 to 21.1 per cent at the end of the 2023 – the lowest operating cost margin for Zenith Bank in many years of its operations.

This means the bank used an average of 21 kobo of operating cost to generate the naira of its revenue – down from about 36 kobo in 2022.

With the revenue gains and the cost saving, net profit margin improved from 23.7 per cent in 2022 to 31.7 per cent at the end of 2023.

Strong gains in revenue and profit margin powered the tripling of after-tax profit of Zenith Bank from less than N224 billion in 2022 to roughly N677 billion in 2023.

The bank also closed the year’s operations with a much expanded balance sheet of N20.4 trillion, an increase of almost 66 per cent from the closing level of N12.3 trillion in 2022.

The increase of N8.1 trillion in asset base in the year is close to the combined increase in assets the bank recorded in seven years to 2022.

Zenith Bank earned N21.55 per share at the end of 2023 operations, more than three times the N7.14 per share it earned in 2022.

The bank has announced a final cash dividend of N3.50 per share in addition to an interim of 50 kobo per share. Qualification date is 25th April and payment is scheduled for 8th May 2024.