Business
Zenith Bank aims for the heights
Peter Amangbo, GMD/CEO, Zenith Bank
… pre-tax profit up 10% to N167.3bn
By OKEY ONYENWEAKU
From a one flat accommodation in a remote corner of Lagos 28 years ago, Zenith Bank has achieved the improbable. The bank with a meagre asset base of $4million three decades ago has managed to quadruple that figure to a staggering $16billion (N5.7trillion) today.
Nigeria’s largest bank by asset base, Zenith has galloped to an impressive financial performance in 2018. Not even old generation banks which had looked imperial and untouchable when Zenith Bank was founded can compete with the lender in revenues and profitability.
Despite a volatile business landscape, Jim Ovia, founder of the bank, has diligently pursued an Africa vision that seems to be yielding up profit and revenues in spades.
Ovia, in a recent book he titled, ”Africa: Arise and Shine”, notes that the little duplex from which the bank commenced operations, ” was the starting point for a business that became a London Stock Exchange-listed company with operations in the UK, China, UAE, Ghana, Gambia, Sierra Leone, with more than 400 branches and business offices in Nigeria. What lessons can the next generation of entrepreneurs learn from the meteoric rise of Zenith Bank?”.
Capitalising on the opportunity offered by the opening and liberalization of the banking space by the General Mohammed Babangida era in the late 80’s, its management introduced a different and unique customer services approach, an unusual disruption from the tally number regime that swiftly attracted clients to the bank.
Zenith Bank has not ceased to enjoy the fruit of that innovation till date as it now parades a teaming number of customers in the industry.
Analysts observe that Zenith Bank Plc is fashioning a path to larger earnings in 2018. The bank’s management, while grappling with rising operating expenses as a proportion of income, has still managed to spear its nonperforming loans (NPLs) as the banks nine months 2018 results portray the reworking of the bank’s operational performance.
PERFORMANCE/ RESULTS
Zenith Bank Plc’s strength is reflected in its 9 months 2018 Profit before Tax (PBT) of N167 billion, an increase of 9.7 per cent over N152.55 billion posted in nine months ended September 30, 2017.
The group unaudited result and accounts disclosed that profit after tax also rose by 11.6per cent to N144.2 billion in 9 months ended September 30, 2018 from N129.24 billion reported in 9 months ended September 30,2017.
Notably, the group’s gross earnings fell by 10.7 per cent to N474.6 billion nine months 2018 from N531.3 billion in 2017, reflecting a tough operating environment.
The Group optimised its bottom line through efficient treasury and liquidity management which resulted in a 31 per cent decline in interest expense to N110.5 billion in 9 months of 2018 over the N160.3billion prior period.
Also, interest income dropped by 6.3 per cent to N339.06 billion from N361.8 billion reported in 9 months of ended September 30, 2018.
Consequently, the group Net interest income rose by 13.4 per cent to N228.5 billion from N201.49 billion reported in nine months ended September 30, 2018.
The group enhanced asset quality as impairment charges fell significantly by 69.5 per cent to N14.3 billion from N47.05 billion in 9 months of 2018.
During the 9 months to September 2018, fees and commission income was N69.97billion compared to N71.02billion in September 2017, showing a 1.5 per cent decline.
However, the group total operating expenses rose by six per cent to N182.42 billion as against N171.36 billion reported in 9 months of 2017, driven by 50 per cent and 41.4 per cent increase amortisation of intangible assets and Depreciation of property and equipment respectively.
Total deposits as at September 2018 was N5.6 trillion representing a marginal increase 0.4 per cent from December 2017 financial year figure of N5.59.
Loans and advances to customers dropped by 13.1 per cent to N1.8 trillion as at September 30, 2018 from N2.1 trillion reported in 2017 while Customers’ deposits dropped by 4.7 per cent to N3.28 trillion from N3.4 trillion reported in 2017.
The group in a statement had explained that, “As the operating environment continues to stabilise across the economic indices of inflation, a foreign exchange market, and healthy foreign reserves, management’s outlook is positive going into the second half of the year.
“The Group continues to deploy strategies aimed at increasing its retail segment markets share while consolidating on its leadership in the corporate segment.”
Analysts at Cordros Capital said the total impairment charges in the quarter was relatively flat, as it dipped 0.79 per cent year-on-year (y/y).
“Together with a nine per cent decline in gross customer loans, annualized cost of risk for the period printed at 0.93per cent (vs. 2.8 per cent in Q3-17), according to our estimates. It is also worth stating that gross loans dipped further by two per cent, compared to H1-18, amidst continued paydown by obligors.
“The cost to income (CTI) ratio for the quarter inched up 200 basis points y/y to 45per cent, but was much lower than the 53per cent (-900 basis points) recorded in H1-18, amidst a seven per cent y/y increase and 22per cent q/q decrease in Q3-18 opex.
In its full year results for the year ended 2017, Zenith Bank suffered a 55.6 per cent rise in its NPL ratio to 4.7 per cent compared to 3.02 per cent it had in the previous year in spite of trimming is loans and advances -4.6 per cent to N2.25 trillion in 2017. Its impairment loss swelled 204 per cent to N98.23 billion in 2017 as it was part of the 13 banks consortium that provided N541 billion to Etisalat in 2013.
But the bank was able to rake in N745.19 billion as revenue, influenced by 456 per cent rise in trading gains, which was 46.7 per cent improvement from the N508 billion income it generated in 2016. Zenith Bank increased its profit for the year by 37.2 per cent to N177.93 billion.
Management
Zenith Bank is one of the banks that can boast of being professional. Its top officers have also been known to be ethical. However, there has been a debate whether it was ethical for the bank to have raised funds from the capital market two times in one year.
Unlike the squabbles that characterize change of leadership in corporate Nigeria, Zenith Bank has achieved two seamless transitions. The founder of the bank, Mr. Jim Ovia held sway as helmsman for 20 years from 1990 to 2010.
The present Governor of the Central Bank of Nigeria, (CBN), Mr. Godwin Emefiele served for four years and handed over to Mr. Peter Amangbo, the current GMD of the bank. These transitions have occurred without rancour.
Corporate Governance
A critical observation of banks management in Nigeria shows there have not been clear and qualitative corporate governance.
Over the time, the public has been doubtful about the sincerity of banks and have blamed failures of financial institutions in Nigeria to lack of corporate governance. Though Zenith Bank has never been referred or suspected to have failed in any form of corporate governance, but some banks have been accused of insider dealings which did them in.
Skye Bank Plc has been suspected to be one of such banks. Banks such as Oceanic Bank Plc, Afribank Plc, Intercontinental Bank, Spring Bank Plc and All states trust Bank Plc. However, Zenith Bank has been strong and survived a lot of head and tail winds.
Analysts agree that the bank needs to haul in some of its loans and engage in a series of work out arrangements and loan restructurings to relieve the perverse pressure the delinquent commercial credits appear to be having on the banks profit and loss account.
With the economy still locked in a feeble disposition, financial institutions appear uncomfortable that the future will remain smooth that the fragile banking industry could continue to have sustainable profitability.
Despite the challenging operating environment, Zenith Bank is determined to carry on with its cardinal values of excellent customer service, highly professional and competent workforce, as well as the optimal use of technology continue to be the driving forces behind the outstanding performance.
Since Zenith Bank Plc, one of Nigeria’s largest deposit bank, emerged on the banking landscape as a major player, it has not wavered. It has advertised one of the largest bank balance sheets consistently for two decades.
ANALYSTS VIEWS
Analysts have fingered a number of strong points about the bank. They note that It is the only bank in the financial industry that has continued to grow organically in spite of the induced mergers and acquisitions by an industry-wide and Central Bank of Nigeria-sponsored Consolidation programme in 2005. This means that the bank has continued to maintain a consistent and undiluted corporate culture since its founding. With a vision to play in the big league, Zenith Bank’s management had decided to grow up its capital when most of its contemporaries lacked the capacity. The bank had gone public before the 2005 banking consolidation policy of the CBN which was visionary and put it ahead of competition.
Lagos based analyst, Mr. David Adonri, the Managing Director of High Cap Securities, told Business Hallmark, that he does not really see any short comings with the bank which not only conforms with regulatory rules, but also has one of the best customer services in the industry.
”It is a little difficult to find anything odd about the bank. Its returns are good; its profitability is strong. My only advise is that the bank should sustain what it is doing in the banking space”, said Adonri
From that vantage point, the bank has maintained not only a steady growth, but also a leadership position in the industry over the years.
Among the few top performers, what distinguishes Zenith Bank is not just the mega size balance sheets but the high degree of innovation and quality of ideas which forms the bedrock of operations.
Zenith bank recognized very early the critical role technology would play in the industry and exploited it.
The bank’s service delivery has won numerous international endorsements and awards, including Best Bank in Corporate Governance in Nigeria by Global Banking and Finance (2015), Best Customer Service Bank in Nigeria by Global Banking and Finance (2014) and the Most Customer-Focused Bank in Nigeria by KPMG (2014).
Commendably, Zenith was one of the first Nigerian financial institutions certified by the British Standards Institution (BSI) on three key ISO (International Standards Organisation) standards namely; ISO 22301 (Business Continuity Management), 27001 (Information Security Management) and 20000 (IT Service Management). Zenith is the first Nigerian institution to win the three standards at ago.
By this feat, the bank already reputed for its culture of service delivery, joins other global brands with the highly-rated ISO certification.
In his remarks, the GMD/CEO of Zenith Bank PLC, Peter Amangbo had stated that the solid financial performance, Zenith’s industry leadership, resilience and consistency in achieving its strategic objectives despite the challenging business environment.
“Our commitment to these standards stems from a resolve to deepen the customer experience through greater information security and an IT management system that emphasises the protection of the customer and his investments in an increasingly unpredictable business environment; via subscription to internationally-accepted principles”, Amangbo had said.
Zenith bank, the biggest in Nigeria by Tier-1 capital, was also the first to adopt a new financial reporting policy of publishing audited half-yearly results, a development hailed by market analysts as representing a major boost for the financial brand. The bank, which has a history of exceeding peoples’ expectations, has also had a history of impressive and qualitative performance. But it is hard to ignore its determination deliver superior services. Before, competing institutions knew what was happening, the bank had warmed its way to the hearts of high net-worth clients.
CORPORATE IMAGE
Zenith Bank is still a high -flying financial institution. However, its response time to inquiries appear to be slowing down as the corporate affairs department needs to wake up. Industry watchers advise that the bank should return its earlier swift response to enable the lender achieve her set goals. While BH did not receive responses to the email, text and WhatsApp messages to the bank, Peter Amangbo had made a point of duty to maintain good and qualitative service delivery in the bank. High net-worth customers still hold their banks dearly. But, low income persons seem not to be pleasant with the Financial Institution which seems to have excluded them as customers. Zenith Bank has been severally rated positively by Fitch Rating agency and other rating agencies as a strong and stable bank.
With the weak economic structure of the country, Zenith Bank has a hard slog ahead as it continues to keep its nose ahead of its competition in a keen race for profitability and survival. Whether the bank succeeds or not will be critically based on how tightly it contains cost and how smartly it is able to grow deposits while containing delinquent assets.
A Lagos based shareholder activist, Mr. Boniface Okezie believes that Zenith Bank’s services is second to none. He added that the bank is strong in every parameter.
”Stakeholders are pleased with its performance in terms reward and social corporate responsibility”, said Okezie
That Zenith Bank’s results for the nine months looks impressive has not had a corresponding impact on its stock price. However, this development could be blamed on the Bearish market trend caused by the increase in the interest rates of the developed economies which has pulled investors from the weaker economies.
Whereas the lenders stock price has gained 3.3 percent year on year, it has dropped by 7.4 per cent when it opened at N25.93 to N24.00 per share as at Thursday September 25, 2018.
