Zenith Bank: N150bn Operating Expenses, -13% Investment Income Decline

Managing Director/CEO

Zenith Bank Plc

Zenith Bank released its H1-21 interim financial report recently showing that operating expenses grew at a faster pace (+10.3% to NGN149.85 billion), as all major contributory line items, save for personnel expenses (-3.3% y/y to NGN37.58 billion), recorded growth.

According to Cordros Capital, interest income declined by 6.0% y/y to NGN203.93 billion, following declines in income from investment securities (-12.6% y/y to NGN62.84 billion) and loans and advances to banks (-66.0% y/y to NGN5.66 billion).

“Both declining contributory lines masked the growth in income from loans and advances to customers (+5.5% y/y to NGN135.43 billion) as risk asset creation edged up by 2.1% to NGN2.84 trillion in H1-21. Particularly, the respective 22.5% and 16.8% y/y growth in AMCON levy and NDIC premium drove costs higher. Consequent to the higher opex growth relative to operating income, the bank’s cost-to-income ratio (ex-LLE) settled higher at 56.1% (HY-20: 54.3%).

Likewise, interest expense declined significantly by 26.1% y/y to NGN43.99 billion, reflecting the lower cost on deposits from customers (-38.5% y/y to NGN26.16 billion) and despite the higher interest cost on borrowings (+4.9% y/y to NGN17.83 billion). Consequent to the larger decline in interest expense, net interest income settled marginally higher by 1.6% y/y at NGN159.94 billion. After accounting for credit impairment charges (-17.2% y/y to NGN19.80 billion), net interest income (ex-LLE) settled 5.0% higher year-on-year.
Maintaining the trend from last period, non-interest income (NII) settled 8.8% higher y/y at NGN126.77 billion. This was supported by the significant expansion in fees and commissions income (+42.3% y/y NGN47.66 billion) and gains from other operating income (+244.6% y/y to NGN7.34 billion).

The impressive NII expansion, alongside the growth in net interest income, led to a 6.8% y/y increase in operating income to NGN266.91 billion.
Overall, profitability was stronger, with profit-before-tax 2.6% higher year-on-year. However, profit-after-tax expansion settled at 2.2% year-on-year growth (NGN106.12 billion), on account of a 6.2% y/y increase in income tax expense.”