Zenith Bank multibillion Naira Gambit

… Peter Amangbo’s Challenge
Okey Onyenweaku
In a season of tumbling profits and weaker earnings Zenith Bank Plc seems to have pulled off a near miracle by growing its earnings and profits beyond analysts’ expectations. In a Business Hallmark Intelligence Unit poll of five stock brokers and five market economists at the turn of the year, 2017, the majority (60 per cent) where of the opinion that Zenith Bank Plc would see a marginal drop in revenues and a slight slide in profit as the bank copes with major foreign exchange translation losses and slower customer business. Fortunately for investors none of the gloomy forecasts panned out as Zenith’s 2016 audited financial statement zipped past analysts’ projections, although admittedly at some cost.
The rise in the banks gross earnings from N432.535 billion in 2015 to N507.997 billion in 2016, a growth of 17 per cent, has been accompanied by a spiralling of its provisioning
for bad or doubtful assets, the bank’s loan provisions rose by 106 percent from N15.6billion in 2015 to N32billion in 2016.
This, however, is not unique to the bank but reflects the adverse impact a troubling recession has had on the financial sector with average industry provisions rising to 12 per cent of average loans outstanding. The challenge of falling loan quality and rising loan default has become an industry wide concern in the face of unstable foreign currency rates, sliding real disposable consumer incomes and soaring domestic inflation. Higher inflation rates over the last seven quarters (since the middle of 2015) has prompted the Central Bank of Nigeria (CBN) to apply the brakes to the growth of money supply leading to a massive rise in local interest rates and the scooting of the cost of funds of a variety of local businesses.
But what has really caught analyst’s attention, is the decision of the bank to raise fresh equity capital to the tune of N100billion ($316m). The Zenith Bank franchise remains one of the two strongest financial brands in the country to date, and the bank itself is one of the sturdiest. Therefore, the decision to increase its capital base (and the consequences of the dilution of existing shareholder’s equity) have brought investors and stock brokers to a point of whipping out their calculators to figure out what the implications would be for future earnings per share and dividend pay-out yields going forward. At a recent market price of N14.78 the banks dividend yield is 14 per cent and its price earnings multiple is 3.5, increasing equity would, in the short-term, therefore, would crash both figures. But that would only happen if the application of the new money raised does not generate at least the same percentage growth in future earnings as the growth in capital. Given the banks antecedents, the banks fresh equity flow would ease operating liquidity, expand its loan book and raise interest income in 2017 by at least a further 15 per cent.
Already, the bank has disclosed its intention to seek its shareholders’ approval next month to raise the funds through a combination of share or bond sale and global depository receipts.
The lender also said it would seek approval to increase its share capital to 40 billion naira from 20 billion naira at the shareholders’ meeting on March 22.
How would a Nigerian bank dare to raise a staggering N100billion from financial markets in a slowly receding recession? Several analysts have asked. That bolshiness and devil-may-care attitude is precisely what makes Zenith Bank special. The banks board and management are known to do the unthinkable and sometimes the unexpected. But ultimately, they have been vindicated, a case in point was the banks early recapitalisation that went ahead of the subsequent call by then Central Bank Governor, Chukwuma Soludo, for all local banks to raise their capital base to N25billion in 20005. Zenith’s brazen effort at increasing its capital base may again likely prove fortuitous.
The bank, founded by Mr. Jim Ovia, has proven to be formidable industry strategist and credible financial performer over the years.
The lenders audited financial reports have remained bright over time. And it’s 2016 report is equally impressive. Several stakeholders have said that given the hard times and the plunge in the country’s Gross Domestic Product, the bank has been able to create wiggle room for stable balance sheet growth.
Nevertheless, despite the banks formidable reputation for pulling off difficult feats, there are still doubts about the timing of the banks new capital offer. There is the fear that the bank would be coming to the market at the wrong time, given perceived low market liquidity, falling equity prices and a general investor apathy.
Many other institutions have been dodgy about it despite their desperate and almost hopeless situations. Available information suggests that no bank, in recent years, has dared to raise fresh funds by way of public offers, bonds or Global Depository Receipt in the last one year and half. This therefore has left analysts quizzical about Zeniths managements confidence in getting cash out of investors pockets, particularly with anxiety festering about the economy’s medium term outlook.
Pushing against a harsh recessionary climate, Zenith Bank Plc has characteristically managed to pull off an impressive 22 per cent growth in its profit after tax for the year ended December 31st, 2016.
According to year end 2016 results released to the public two weeks ago, the bank achieved significant growth in both its top and bottom line earnings.
Details of the result show that the bank achieved a revenue growth by 17 percent rising to N507,997 billion in 2016 from N432,535 billion in the corresponding period of 2015.
Its profit after tax grew to N129,652 billion in 2016 from N105,663 billion the previous year.
The bank equally grew its end of year total assets by a solid 18% on a year-on-year basis, indicating an impressive growth of its basic operations.
Its operating expenses rose by 5% from N89, 928billion in 2015 to N94,365billion in 2016, while it achieved a 12.2% growth in its fees & commission income from N60.904billion to N68.444billion.
During the year, Zenith Bank expanded its loans book by 15% to N2.289trillion in 2016 from N1,989trillion in 2015.
The feat was a testimony to the clever balancing act in its sectorial lending portfolio and its firm hands on management of a variety of complexed risk assets that had the potential of hurting the stability of its books. The deposit money institution, hitherto known for aggressive retail lending, has been able to keep its head above bloody waters in the face of major problems in the retail sector of the economy that has resulted from a season of worsening foreign exchange rates and an increased squeeze in liquidity resulting from the federal governments implementation of a Single Treasury Account (STA) policy which has sucked over N3billion from the financial system.
Since Zenith Bank Plc, Nigeria’s second 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 sheet consistently for two decades.
Analysts have fingered strong points about the bank. They note that It is the only bank in the financial industry that has continued to grow organically despite 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.
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 top industry performers, what has distinguished the bank is not the large size of its 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.

In addition, Zenith Bank has a streak of having its shares or bonds oversubscribed. Zenith Bank in 2004 had issued its Initial Public Offering (IPO) at N10.90 per share and raised about N48 billion. This was then regarded as the highest amount to have raised in the Nigerian capital market given at that period time. It was hugely over -subscribed but for regulatory provision it could not absorb all the money raised but retained about N36 billion.
During the second round of consolidation, its Public offering of N50billion which ran from 6 February to 20 March 2006 was also hugely successful. And its $500million Eurobond was also over -subscribed by 200 per cent on April 2014. With this record, it is therefore, expected that Zenith Bank would have no or little challenge in raising the proposed fund.
But industry analysts believe that the times have changed, the markets have changed, the financial landscape has also changed and investors are more cautious now that the economy is in recession. This implies that no institution can have a smooth ride as before. Not even now that the economy is more troubled.
Can Zenith Bank’s offering in shares, bonds and Global depository receipt receive the kind of support that gave earlier moves such outstanding successes. Analysts have expressed their reservations on the ability of any company no matter the strength to enjoy unfettered support from shareholders and other investors given the feeling that the market is a death trap now.
In a volatile macro-economic environment, where there is political instability, volatile foreign exchange, very high inflation at over 18.5 per cent and increasing unemployment, there is little any company can do to remain strong and highly profitable, experts believe. Zenith is no exception to these challenges despite its performance over the years. This raises subtle fears of what awaits the bank when its goes to the market to seek the proposed fund.
More so, the capital market which closed the year 2016 in the negative by -6 per cent is still in the cold prompting a significant number of investors to migrate to forms of assets.
The anaemic local currency, the Naira is not well disposed to any foreign loans that will be repaid soon. Many institutions who are in dare need of fresh capital have been afraid to attempt to raise funds via this means that Zenith has proposed.
A few analysts have said that Zenith Bank has impressive antecedent which has over the time endeared it to investors’. On this note, they believe the harsh economic environment can stop the success of raising fresh capital. On the contrary others say the chances of the bank’s success in the project is very slim.
‘’I think the bank can achieve the N100 billion capital raising. The economy is gradually recovering and confidence is coming back. The banks result was good and the dividend was also wonderful’’, Adonri said.
However, the bank over the years exhibited some solid strong points.
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).
Only recently, 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.
The Board of Directors proposed a final dividend of N1.77 kobo per share which in addition to the N0.25kobo per share paid as interim dividend amounts to N2.02 kobo per share (31 Dec 2015: N1.80 kobo per share) from the retained earnings account as at 31 Dec 2016. This will be presented to the shareholders for approval at the next Annual General Meeting.
The groups non- performing loans (NPL) stood at N71.374billion as at December 31, 2016. However, NPL from the oil and gas and energy sectors constitute about 73 percent of the total non-performing loans of the bank. This is a sector that is dreaded now by financial institutions given its ability to shoot up NPLs.
Nevertheless, Zenith Bank has maintained a stable leadership which appear to be reflecting on the deposit money bank, having consistently rewarded it teaming shareholders with dividend.
The bank, over the years has instituted a leadership culture and structure which credibility is being referenced in the industry. Its succession strategy has not only endured but remained rancour free, unlike many others. From its founder, Mr. Jim Ovia to the present Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele and now Mr. Peter Amangbo, there has not been any rancour.
And some have vouched for Mr. Amangbo’s competence and credibility so far.
Managing Director of HighCap Securities limited, Mr. David Adonri believes that ‘’Peter Amangbo has done very well. He has been able to improve the fundamentals of the bank in the midst of stagflation. I think he should take credit for that’’ .

President, National Shareholders Association of Nigeria (NSAN), Chief Tomothy Adesinyan told Business Hallmark in a phone interview how grateful they are with Zenith Bank which rewarded them with dividend during hardship.
‘’We are not only happy, we are also grateful to the management of Zenith Bank. I don’t want to compare it with its peers who will not give us anything’’, he said.
Fortunately, its grand plans for 2017 reflects on the bank which ambition is to break the ceiling and show case a formidable strength to the world. As a result, it has deployed far reaching strategies including monitoring impact of global economy in commodity pricing, foreign Direct Investment (FDI) inflows and general behaviour of local currency to the changes in the global market.
Aside developing other income sources, it is keen on sources for cheaper and stable funds.
To develop market hub initiative to host market players and drive retail participation is part of its plans, in addition to creating additional foreign exchange funding sources from the receipt of foreign deposits from customers especially export proceeds.
Major to its strategies is to pursue and support export strategies to assure expanded foreign exchange inflow and increased collections of payments.
Unfortunately, it plans very big in a battered economy which is still battling to gain traction.
Historically, the bank has weathered the storm and projected an impressive performance. In its five year financial statement from December 2012 to December 2016, its results shows that Zenith grew its gross earnings by 65 percent from N307billion in 2012 to N508billion in 2016 while profit after tax advanced by 29 per cent from N100.6billion in December 2012 to N129.6billion in 2016. In fact, details show that the bank’s profit after tax dipped by -5.3 per cent from N100.6billion in December 2012 to N95.3 billion in 2013 and rose 4.3 per cent to N99.4billion in 2014. The bank’s profit also inched up by 6.2 per cent to N105.6billion in 2015 and jumped 22.7 per cent to N129.6billion in December 2016.