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Tuesday, March 21, 2023

Six Things we Learnt from Zenith Banks 2020 Financials

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Zenith Bank Plc, reported full year 2020 earnings last week and there are a number of things that jump out at us here at MoneyCentral.

Gross earnings of the Group increased by 5.2 percent and profit before tax increased by 5.2 percent. However, profit after tax rose by 22.5 percent as net income rose to N230.56 billion in the Full Year 2020 period.

Effective tax rate falls to 9.8%

Zenith Bank’s effective tax rate for the FY 2020 period fell to 9.8 percent. This compares to an effective tax rate of 14.1 percent for the full year 2019 period.

Zenith’s income tax expense came in at N25.2 billion in 2020, compared to N34.45 billion in 2019.

The mix of income is probably responsible for the slide in effective tax rates despite higher income in 2020, compared to the earlier levels.

Zenith Bank

Dividend Yield of 11.5 percent one of highest in Banking space

Zenith Bank as usual did not disappoint with bumper dividends announced for shareholders.

The tier-one lender proposed a final dividend of N2.70 per share which in addition to the N0.30 per share as interim dividend amounts to N3.00 per share.

This compares to N2.80 total dividends for 2019.

The announced dividend is equivalent to a yield of 11.5 percent, with Zenith shares trading at around N25.95 per share as at the time of filing this report.

The yield is also one of the highest in the Nigerian banking industry.

Zenith 3

Top management is male dominated

Analysis of Zenith Banks Board and top management shows its largely male dominated.

Of the 13 Board members of the bank (Executive and Non-executive directors), 12 are male and 1 is female, equivalent to a ratio of 92 percent male and 8 percent female.

When we look at the levels of Assistant General Managers (AGMs) and General Managers (GMs), there are 37 males and 22 females for a total of 59, equivalent to a percentage breakdown of 63% male and 37 percent female.

Zenith’s expected Credit Losses is a key audit matter

Zenith Banks expected credit losses on loans and advances to customers was treated as a key audit matter by its auditors, PricewaterhouseCoopers or PwC.

Key audit matters are those matters that in the professional judgement of the audit firm were of most significance in their audit of Zenith Banks financial statements of the current period.

Zeniths gross balance of loans and advances to customers as at 31 December 2020 was N2.91 trillion and N2.77 trillion for the group and bank respectively.

The associated impairment allowance on loans and advances to customers was N140 billion and N133 billion for the group and bank respectively.

The auditors noted that the measurement of impairment allowance is highly subjective and involves the use of complex models and assumptions.

Related party transactions

Zenith Bank says loans granted to related parties are secured over real estate and other assets of the respective borrowers and that loans granted to related parties are performing.

During the year, Zenith Bank Plc paid N1.90 billion as insurance premium to Zenith General Insurance Limited (December 31, 2019: N1.78 billion). These expenses were reported as operating expenses.

The Bank entered into a lease contract in October 2017 with Oviation Limited.

Oviation Limited has two common Directors with Zenith Bank. The finance lease agreement has Zenith Bank as lessee for a Gulfstream jet over a tenor of 10 years with annual lease payments of N2.76 billion.

The Bank paid N2.58 billion (31 December, 2019 N5.71 billion) to Cyberspace Network (in which Chairman of Zenith Bank Jim Ovia is a common significant shareholder) for various Information technology services rendered during the year.

Cash reserve deposits with CBN surges

Zenith Bank

The amount of cash held as mandatory reserve deposits with the Central Bank of Nigeria (CBN), increased by 96 percent to N1.33 trillion at the end of 2020, compared to the levels at 2019 year-end of N680.2 billion.

The CBN has hiked the Cash Reserve Requirements (CRR) for banks since 2019 in a bid to contain inflation and reduce pressure on the naira.

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