Zenith Bank steps up growth

Zenith Bank ended its 2016 operations with the strongest growth in revenue and profit in four years. Growth in earning assets also accelerated, leading to an expansion of over 18% in the size of the balance sheet. The bank’s huge credit portfolio grew by 15%, amounting to over N300 billion in new lending. The biggest growth in earning assets came from money market assets, which advanced by over 47% in the year.

The strength for the renewed growth came from a strong boost on the liabilities side of the balance sheet with a rebound in customer deposits reinforced by an additional issue of debt securities. From a flat growth in the preceding year, the bank registered nearly 17% increase in customer deposits in 2016. That meant an addition of about N426 billion to the group’s deposit portfolio that amounted to a little below N3 trillion at the end of last year.

Zenith Bank earned N508 billion in gross income in 2016, an increase of 17.4% over the prior year’s figure. This is an accelerated growth from 7.2% in 2015 and the strongest revenue improvement since 2013. Interest income, at N384.56 billion, accounted for about 76% of gross earnings in the year but non-interest income led the revenue improvement achieved with a top record growth of 46% to N123.44 billion.

Interest expenses grew ahead of interest income for the third year running at 17% compared to 10.4% and that continued to limit the contribution of interest income to profit growth. Net interest income slowed down from about 9% increase in the preceding year to 7% in 2016.

Impairment charges posed even a bigger challenge for the bank in the year with an upsurge of 106%. That represents the highest growth rate in many years, claiming 13.5% of net interest income against 7% in 2015. This meant that the increase in net interest income was insufficient to meet the increase in loan loss expenses. Consequently, net interest income after impairment charges declined over the review period, meaning that interest income contributed negatively to the profit growth recorded.

The strength for the profit growth achieved therefore came from the strong growth in non-interest income and a firm control of operating expenses. Against the rise of 46% in non-interest income, operating cost increased by 4%, letting much of the increase to flow down to profit. This is the major development on the bank’s income statement that made all the difference in the bottom line in 2016.

Zenith Bank ended the 2016 fiscal year with the lowest operating cost margin in many years and inversely the highest profit margin in three years. At 34.4%, operating cost margin is lower than any time in the bank’s operating records and net profit margin moved up to a three-year best record at 25.4%. This is one of the highest profit margins in the banking sector.

The bank’s critical earning factors are the high volume of revenue and the strong ability to convert it into profit. While it is not the biggest revenue earner in the banking industry, it is the industry leader by profit, which indicates the strength to extract profit per naira of revenue.

The bank closed the 2016 operations with a net profit of N129.22 billion, an increase of about 23% over the 2015 figure. This is the strongest profit growth the bank has seen since 2013.

The bank earned N4.12 per share in 2016, improving from N3.36 per share in the preceding year. It paid a total dividend of N1.80 per share for its 2015 operations. It was yet to announce dividend for the 2016 operations at press time.