Zenith Bank’s Q2 result shows decline across income lines

August 7th, 2018

From John Silas, Lagos

The second quarter result of Zenith Bank Plc has indicated a decline across major income lines, which resulted in a 34.25 percent year-on-year and 9.56 percent quarter-on-quarter drop in Gross earnings.

Interest income was 40.31percent down from the corresponding period last year, and lower by 39.66 percent q/q. The decline offset a 63.08 percent y/y and 40.09 percent q/q decline in interest expense, resulting in net interest income falling by 15.06 percent y/y and 39.45 percenty q/q in the quarter.

Besides, the overall, pre (-1.19%) and post-tax (-26.38%) profits were lower q/q, and while PBT was up 11.20 percent y/y, PAT lower by 8.36 percent, following an increase in effective tax rate to 35.05 percent, from 21.18 percent in the previous year. Meanwhile, a higher dividend of N0.30 was declared, compared to H1-2017 (N0.25).

Improved cost of funds salvages NIM, despite a poorer yield on assets: Cost of funds, on an annualized basis, was significantly lower, by 300 bps y/y, at 3.4 percent. This was largely attributable to cheaper deposits, as interest paid on deposits in H1 dropped sharply by 63.72 percent y/y to N37.88 billion, despite a 6.42 percent y/y increase in customer deposits. In particular, interest paid on time deposits declined significantly by 306.19 percent y/y to N22.8 billion, amidst continued decline in interest rates.

On interest income, earnings on loans and advances in the first half was down by 18.0 percent y/y to N146.43 billion, amidst 14.36 percent y/y drop in loans and advances to customers (YtD: -10.82%) to N1.87 trillion. Overall, thanks to an impressive improvement in the CoF, NIM sustained growth (+150 bps y/y), at 10.1 percent, despite drop in analysts estimated yield on assets by 263 bps to 12.71 percent.

The results also revealed the bank’s inability to sustain growth in its trading income thus far this year, with a derivatives loss of N18.59 billion reported in the review period, against the income of N46.42 billion in H1 last year.

However, overall, trading income in Q2 was robust at N35.10 billion, from N1.71 billion recorded in Q1.

Analysts say this is largely attributable to the N55.09 billion recorded as treasury bills trading income, from a nil position in Q1. However, year on year, the trading income was lower by 39.76 percent, owing to the loss sustained on the derivatives line.

Whereas quality of assets remain stable, amidst continued decline in impairment loss provision, provision for impairment loss, on a year-on-year basis, dipped further in Q2 by 85.09 percent to N5.15 billion.

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