Zenith Bank breaks 28 year performance record

By JULIUS ALAGBE & ADEBAYO OBAJEMU

One of the very revealing fall-outs of its Full Year 2019 results is that Zenith Bank Plc has crossed the Rubicon with the banking group emerging as the first Nigerian bank to cross the previously elusive financial sector profitability threshold of 200billion.

Significantly also, this feat was recorded despite what is generally considered as the harsh operating environment in which businesses are compelled to play in the nation at this time. It is however a fitting testament to hard and rigorous work of the bank’s team as Zenith Bank is hitting a much coveted profit point that it had never reached in its 29 years of existence.

At the same time also, the bank earned N6.60 on every share outstanding in 2019.

Analysts say that with this showing, the Zenith group has equally set a new pace for future profitability on account of its equally improved equity base, aggressive credit position and vigorous deposit mobilization.

While the group adjusted to the regulatorily-conditioned low yield from its investments in securities with some portfolio reshuffles, it however booked more loans with balance concentration across sectors that align with the corporate giant’s risk appetite.

Analysts further hold that the new record would evidently be a yardstick for assessing the overall performance of Tier-1 capital banks going forward.

It is also to be noted that the feat is being recorded in less than a year after Ebenezer Onyeagwu took over the mantle of leadership at the zenith, with his inauguration as the group managing director and Chief Executive Officer. Within that short span of a little over half a year, the group has boosted shareholders’ funds by about 16%.

Known to be the highest capitalised bank in the nation, and one with strong footprints in the corporate segment of the economy, the bank has also recently started to eye the retail end quite seriously.

“And in this it is doing quite well; with strong expectation to bring on board more retail clients”, an analyst who has taken a lot of time to observe developments at the bank told Business Hallmark.

Part of the evidence of its resurgence resides in its numbers. At a time when the Nigerian economy expanded at a struggling 2.27% year on year, Zenith bank did more than double that outcome as it grew its own gross revenue by 5%.

“That Zenith did twice the level of the economic growth rate is an acceptable trend giving the fact that after government, Banks are the highest spender in the economy”, Consultants at LSintelligence said in an email.

Where did the profits come from?

The group’s gross earnings expanded to N662.3 billion compare to N630.3 billion. The increase represent 5% surge when compare with the 2018 revenue.

But income from income earned from interest yielding assets portfolio backed down, culminating from reduced investment securities where the group had played strongly up until early 2019, no thanks to a fresh wave of regulatory directives.

The audited result shows that the group interest income slowed down by 5.6%, from N4.15.6 billion compared with N440.1 billion the group earned in 2018.

Then, demand on funds used to fund interest earnings asset increased year on year. However, overall cost of funds stayed at 3% which is one of the least in the banking sector.

Specifically on its funding mix, interest expenses expanded 2.8% year on year from N144.5 billion in 2018 to N148.5 billion in 2019.

What this means is that Zenith Plc expended about N37 on every N100 earned from its portfolio of interest earning assets in 2019.

This is a bit higher when compared with about N33 expended in the comparable period in 2018.

Analysts at Coronation Merchant Bank led by Guy Czartoryski say compression in net interest income in the fourth quarter showed a rigid asset/liabilities structure in the face of sharp decline in interest rates.

“We think the bank can make improvements to interest expenses going forward”, Coronation stated

Analysis of interest earnings assets shows that total loan and advances significantly expanded by 20.6% year on year. In 2019, Zenith Plc had total loans of N3.012 trillion as against N2.497 trillion recorded in the corresponding year in 2018.

Analysts are of the view that the push in its loan book was connected to the Central Bank of Nigeria’s directive to banks to channel credit to the real sector of the economy last year.

Accordingly, the Zenith group was expected to create 62.497 trillion recorded in the corresponding year in 2018.

Though, the Zenith group was also expected to convert 65% of its aggregate deposits to loans and advance, the group however achieved a 70.7% showing.

In 2019, its total deposits settled at N4.262 trillion having expanded by 15.5% year on year from N3.690 trillion in 2018.

What this means is that, lending rates were reduced in order meet the target which was also due to a lower yield environment.

Increased loan book did not translate to bloated interest income per se, just at the same time when investment in securities return lower compare with previous year.

As result of increased loan book, the group booked higher impairment on credit losses for 2019 as shown in its audited statement.

Impairment credit increased by 30% from N18.4 billion in 2018 to N24 billion at the end of financial year 2019.

Despite the sharp increase loan book and associated impairment credit booked in the year, non-performing loan at the group level trend downward to 4.3% in 2019. This was 70 basis points below the 5% recorded in 2018.

What then supports the profit?

Zenith’s investment and other income increased more than 29% from N180 billion to N232.1 billion at the end of 2019.

While average inflation rate for 2019 was 11.4%, Zenith bank reported that its operating expenses surged by just 2.8% year on year.

The financial statement shows that the group’s operating expenses jerked up from N225.5 billion to N231.8 billion.

With this, profit before tax only rose 5% year on year from N231.7 billion in 2018 to N243.3 billion a year after.

When compared with its 2018 results, there was a 10% reduction in tax liabilities which did impact the bottom line strongly.

At the increased rate of 8%, Zenith’s group profit after tax hit N208.8 billion in the audited financial statement for 2019 as against N193.4 billion in the corresponding year in 2018.

Zenith Bank Plc reported an increase in net margin from 30.7% to 31.5% in 2019.

What this means is that lender earned 31.5% spread on its businesses compare with 30.7% in the corresponding year in 2018.

The improvement came on the back of its ability to reduce cost, just as deposit repricing had positively impacted funding cost.

Banks generally reduced, perhaps offloaded expensive terms deposits with cheaper alternatives.

Cost as proportion of income generated by Zenith sloped downward in 2019.

The audited financial statement shows that Zenith CIR pitched at 45.1% as against 46.4% in the comparable period in 2018. This widened its profit margin as the group expenses per income slipped.

Capital base

Analysts at Coronation believe that the bank remains in the strong capital position. Its capital adequacy ratio which berthed at 22% in 2019 was stronger than 16% required for international banking license.

In the year, Zenith group raised its shareholders fund by more than 15% from N815.8 billion in 2018 to N941.9 billion.

Return on assets of 3.4% and return on equity of 23.8% for the financial year 2019 as audited are well in excess of industry benchmark for Nigerian banks, analysts stated.

At the end, the Board of Directors proposed a final dividend of N2.50 per share which in addition to the N0.30 per share paid as interim dividend amounts to N2.80 per share.

Zenith Bank Plc raised its balance sheet size by 6.6% from N5.955 trillion to N6.346 trillion in 2019. The group grew the balance sheet despite massive repayment of borrowed funds.

Total borrowing sloped downward significantly from N1.191 trillion in 2018 to N754.4 billion at the end of financial year 2019. This translates to about 37% reduction in leverage position year on year.

Then, its total liabilities surged 5.5% with significant push coming from aggressive deposits mobilization in 2019.

Looking ahead

Meanwhile, Zenith Bank GMD/CEO, Ebenezer Onyeagwu has alerted that there is every possibility that the current Coronavirus scourge may affect the nation’s growth outcomes in the current year.

Speaking last week to CNBC Africa, the banking czar stated that given that Nigeria is part of the global environment, it is not immune from events and trends around the globe. He said Nigeria cannot grow so much in a global space where growth is already sluggish and muted because of the impact of the Coronavirus.

The virus is currently ravaging China and has spread to many countries, with Nigeria reporting the first case on Tuesday when an Italian residing in Nigeria returned to the country from Italy.

The Zenith Bank chief executive officer also said the tier-1 bank has begun collaborating with fintech companies to drive payment solutions and other products for its customers. This comes as the Nigerian digital economy keeps evolving significantly, with more people continuing to switch from the conventional manual-based ways of undertaking banking transactions to the digital ecosystem.

According to him, the company’s increasing focus on digital banking is partly responsible for the N208.8 billion profit after tax that was reported in 2019. Recall that Zenith Bank’s profit after tax increased by 7.9%, up from N193.4 in 2018.

While commenting on the audited 2019 financial statement, Onyeagwu noted that retail banking also played a huge role in the impressive result. This is because 2019 was the first full-year that the bank ventured full-time into retail banking. He said:

“Last year was our first full year in our foray into digital and retail banking. So, when you are looking at the digital income and fees, it’s a combination of both digital and retail fees. Last year was the first full year when we went full blast into the retail business, so we’ve seen that combine to give us incremental growth in terms of income from fees and electronic commission.

“Zenith is also known to have a bias for digital and investment in IT. We are leveraging on that to build very strong capability and competencies to drive business. There are quite a lot of product developments which are targeted at very niche markets.

“We are also looking at some integration with various fintech companies depending on what services you have. Sometimes we are collaborating with fintech companies to drive payment on different platforms. In some cases, too, we are churning out new products just to create confidence for our customers.

Ebenezer Onyeagwu: Profile of a record breaker

Onyeagwu

Mr. Ebenezer N. Onyeagwu, who was announced by Zenith Bank Plc. As its Group Managing Director/CEO of the bank effective June 1, 2019, subject to the Central Bank of Nigeria (CBN) approval came to the position after a very long spell of meritorious service to the industry and bank.

In making the announcement for example, the bank had affirmed that ‘the appointment was consistent with the bank’s tradition and succession strategy of grooming leaders from within.’ This seems to be playing out quite significantly in favour of the leading financial services player as underscored by its books.

Onyeagwu replaced Mr. Peter Amangbo, who had equally taken over the reins from incumbent Governor of the Central Bank, Mr Godwin Emefiele, who had also in turn stepped into the saddle after the tenure of the founding GMD/WCEO and incumbent Chairman of the banking group, Mr Jim Ovia.

Long seen as a principal leader within the group, Onyeagwu seemed for all intents and purposes then to be a square fit for the role as Amangbo’s tenure came to a close on May 31, 2019.

To his credit, Onyeagwu is a vastly experienced banker and financial expert, trained in reputable institutions of learning in Nigeria, the United Kingdom and United States of America.

A graduate of Accounting from Auchi Polytechnic where he obtained the Ordinary National diploma in 1984 and Higher National Diploma in 1987, he qualified as a Chartered Accountant in 1989 while he was undergoing the compulsory National Youth Service Corp (NYSC). Post graduation, the highly motivated and sure-footed youth was equally to be named a Fellow of the Institute of Chartered Accountants of Nigeria (FCA) in 2003.

Onyeagwu is also an alumnus of the prestigious University of Oxford, England, from where he obtained a Postgraduate Diploma in Financial Strategy, and certificate in Macroeconomics. He also undertook extensive executive level business education in Wharton Business School of the University of Pennsylvania, Columbia Business School of Columbia University, the Harvard Business School of Harvard University and the Lagos Business School of the Pan African University, Nigeria.

He joined Zenith Bank Plc in 2002 as a Senior Manager, in the Internal Control and Audit Group of the bank. His professionalism, competence, integrity and commitment to the set objectives of the bank saw him rise swiftly between 2003 and 2005, first, as Assistant General Manager, then Deputy General Manager, and eventually as General Manager of the bank. In these capacities, he handled strategies for new business and branch development, management of risk assets portfolios, treasury functions, strategic top level corporate, multinationals and public institutional relationships, among others.

As Deputy Managing Director, Mr. Onyeagwu had oversight over the bank’s Financial Control and Strategic Planning, Risk Management, Retail Banking, Institutional and Corporate banking business portfolios, IT Group, Credit Administration, Treasury and Foreign Exchange Trading, as well as general administration of the bank, among others.

Rising further within the group, Onyeagwu was named Executive Director of the bank in 2013, and put in charge of Lagos and South-South Zones as well as strategic groups/business units of the bank including Financial Control & Strategic Planning, Treasury and Correspondent Groups, Human Resources Group, Oil and Gas Group, and Credit Risk Management Group, etc. He was named Deputy Managing Director of the bank in 2016.

He has been on the board of Zenith Bank Ghana, Zenith Pensions Custodian Limited, Zenith Nominees Limited and African Finance Corporation (AFC) within the last six years. In AFC, he served on the Board Risk & Investment Committee (BRIC) and Board Audit & Compliance Committee (BAAC). At Zenith Bank Ghana, he had also chaired the Board Credit and Governance Committees.

A well-heeled professional in almost every respect, it is evident from these early reports that Zenith Bank is in safe hands with Onyeagwu.