By Okey Onyeweaku
No one seems to know what the future holds for the economy. Even the financial institutions which are the engines of the economy have confessed to be at a loss. Despite the avalanche of challenges besetting the economy, the banks are deploying every available strategy to turn the hand of the clock. But experts are of the opinion that only the strong, focused and proactive can weather the economic tsunami caused by the devastating effect of Covid-19. Covid-19 has caused huge disruptions in the world as well as caused the death of millions.
Many banks are burdened by myriad of challenges ranging from low interest rate, weak economy, high country risk, increasing non-performing loans, policy constraints, business challenge caused by insecurity in the Northern part of Nigeria and customers in ability to cope with the volatility in the environment.
But these problems have not deterred Zenith Bank whose ambition quite clearly is to be the biggest and best service oriented bank in Africa and beyond from continuing to forge ahead of the pack. And of a truth, investors in Zenith bank shares are seemingly tenacious because of the benefits that they get in return. And the beat goes on , even in these dire times/
Quite notably, the bank’s stock price closed on Friday February 18, 2021 at N25.00 per share. The third highest priced banking stock on the Nigerian Stock Exchange, just behind Stanbic Ibtc at N43.00 per share and GT Bank at N30.90 per share, Zenith Bank’s stock had attained an all-time high share price of N68.97 per share in August 2007. That was during the boom time before the market crash in 2008. In a deja vu expression of sorts, the stock was also to hit that magic number three years after the bank had raised some humongous funds from the market.
And this was coming on a string of strong runs including, the bank’s public offering in 2004 which was over -subscribed by 524 per cent sold at N38.90 per share while its rights issue was at N36.90 per share. Though times have since changed, the share price also attained the giddy height of 27.50 per share as at January 29, 2021. In fact, with outstanding shares of 31.4billion, Earnings per share (EPS) of 6.92 kobo and a P/E Ratio of 3.47, investors are still very much interested in the bank’s stock. In line with these, its stock price closed at N24.10 per share on Thursday 18, 2021.
Though there are fears that banks have come to be challenged especially recently by matters like the overall economic contraction, reduction in fee and trading income, higher credit losses and its impact on overall asset quality, capital and liquidity, cyber security breaches, operational constraints of keeping employees safe and coping with the deterioration of IT and other support services, the verdict simply is that the likes of Zenith Bank are still quite formidable and indeed pushing ahead with even stronger gusto.
There is also a consensus that it has become hard for firms to fly in such weak economies as Nigeria where the economy which is still very fragile and just recovered by 0.11 per cent from a recession by 3.6 per cent; where inflation is hitting the roof top at about 16. 4 per cent; where the Naira has lost value and vigour; where the budget deficit stood at over-5% of GDP; where insecurity has halted business activities in some parts of Northern Nigeria; where unemployment remains very high; where government is unstable; where economic policies are done to favour a section of the country.
Recently, the government has hiked the prices of fuel and electricity for the masses of the country with 82 per cent of its population in the poverty bracket.
‘’Who would expect companies to perform magic in a country where its citizens appear to have lost hope’’, a senior civil servant who would not want to be mentioned in print.
Despite these challenges Zenith Bank, analysts say yet has the highest in Earnings per share and dividend payout among other measurement indicators within its sector.
At the P/E Ratio of 3.47, the bank’s stock is still very attractive for investors to bet on now to reap higher returns sooner than later.
With the economy still locked in a stagflation, financial institutions appear to see a bleak future and fear that the relatively fragile banking sector may find it difficult to continue to have sustainable profitability.
BH feelers however are that 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, 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 sheets that the sector has seen, and most consistently too, for two decades.
A reflection of Zenith Bank’s solid war chest can be found in the impressive performance the financial institution recorded in the third quarter of 2020.
…And Zenith Bank’s profit inched up 5.7%
Although Zenith Bank’s post-tax profits grew at a slower pace in the quarter under reference when compared with the previous one, it was up 5.7 per cent to ₦159.32 billion in Q3 2020.
Revenue improved 4% year-on-year(y-o-y) to ₦509 billion, driven by non-interest income which rose to ₦173 billion from ₦157 billion recorded at the end of Q3 2019. Interest income dipped from ₦322 billion to ₦319 billion as interest expense and cost of funds declined 13% and 27% to close at ₦94 billion and 2.2% respectively.
Total deposits better by 20.93% to close at ₦5.2 trillion at the end of Q3 2020 up from ₦4.3 trillion in December 2019, dominated by low-cost deposits as retail deposits grew strongly to ₦1.7 trillion at the end of Q3 2020, underpinned by the continuous expansion and improvement of the Group’s digital platforms.
In terms of asset quality, the NPL ratio improved to 4.80% (FYE 2019: 4.95%), despite growing total loans by 14% y/y to ₦2.8 trillion during this period.
Meanwhile, Loan to deposit ratio was down by 1% to 57.1% from 57.8% in Q3 2019 and liquidity ratio weakened by 11 per cent to 50.8% from 57.3% in the corresponding period last year.
“Our liquidity and capital adequacy ratios (CAR), at 67.4% (Bank: 52.5%) and 21.5% respectively at the end of Q3 2020, remain above regulatory thresholds of 30.0% and 15.0% respectively. This gives headroom for providing support to businesses while creating risk assets opportunities in line with our credit risk management framework. Going into the final quarter of the year, we will remain resilient as we keep adapting to the headwinds in the operating environment and continue to deliver enhanced customers experience and stakeholders’ value,” the lender explained.
Zenith bank also showcased strength in its results in December 2019 with impressive figures across board, and displaying improvements, as the profit for the period increased by 7.9% year on year.
The bank’s gross revenue grew by 5.06% to N662.3 billion in FY 2019, up from N630.3 billion during the comparable period in 2018. However, net interest income decreased by 9.7% to N267 billion, down from N295.6 billion that was recorded during the preceding year.
Zenith Bank’s BBT for the period under review stood at N243.3 billion, indicating a 5.0% increase when compared to N231.7 billion that was recorded in FY 2018.
Profit for the year increased by 7.9% to N208.8 billion, up from N193.4 billion in 2018.
‘Samson, where lies your strength?’
Analysts have noted a number of strong points about the bank. They reckon 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 to do so. The bank had gone public before the 2005 banking consolidation policy of the CBN which was indeed a quite visionary thing to do and which was to 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 the few top performers, what distinguishes Zenith Bank is not just its mega size balance sheets but the high degree of innovation and quality of ideas which forms the bedrock of its operations.
Quite notably, Zenith Bank recognized very early the critical role technology would play in the industry and exploited it.
The bank’s service delivery has also won for it 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 a stretch.
By attaining this feat, the bank which was already reputed for its culture of service delivery, joins other global brands with the highly-rated ISO certification.
Zenith Bank, the biggest financial services institutional player in Nigeria by Tier-1 capital showing, 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 to deliver superior services. Before competing institutions knew what was happening, the bank had warmed its way to the hearts of high net-worth clients.
The National Bureau of Statistics (NBS) published its Q4-2020 GDP estimates recently. According to the report, Q4 GDP grew 0.1% y/y, representing the first positive quarterly y/y growth since Q1-2020, an indication that the economy has rebounded from the Covid-19 induced recession. Thus, the Q4 recovery is traceable to the reopening of the economy following the lifting of the COVID-19 lockdown restrictions. The statistics showed that on a q/q basis, real GDP growth was 9.7%, representing the second consecutive positive q/q real growth rate in 2020, noted analysts from United Capital Plc:
This recovery is still very fragile, analysts say but they add that only banks that are rooted not only in retail business but are also very competitive can weather the storm of the weak economy.
They however, noted that Zenith Bank was one of the high fliers.
‘Returns from Zenith Bank is higher than those of others. That is the attraction’ said David Adonri of HighCap Securities Limited.
‘We have always been a very competitive organization. It is about what suits the environment’ said Group Managing Director of Zenith Bank, Mr. Ebenezer Onyeagwu
Zenith Bank is still a high flying financial institution. Its response time to inquiries is swift and Onyeagwu has made it 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 pleased with the financial institution which seems to have excluded them as customers. Zenith Bank was rated positively by Fitch Rating agency last week as a strong and stable bank.
With the economy yet in a tailspin, 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. And indeed, that is the heart of the matter.