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Inside Zenith Bank, Nigeria’s Most Profitable Bank

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Zenith Bank Plc is undoubtedly the most profitable lender in Nigeria as it continues to surmount regulatory and macroeconomic headwinds.

It has weather many storms, and the board of directors have ensured that the lender never sails into turbulence, and they have also endured that shareholders are consistently rewarded by way of dividend.

Zenith Bank has released its Halt-Year results that shows it recorded double digit growth across all key metrics, and its good asset quality validates an excellent risk management strategy and efficient portfolio allocation.

Strong Net Interest Margin as profit surges

For the first six months through June 2022, Zenith Bank’s gross earnings increased by 18.53 percent to N241.76 billion from N203.93 billion the previous year.

It is able to earn more profits on the loan as net interest margin (NIM) increased to 7.10 percent in June 2o22 from 6.40 percent the previous year.

The net interest margin is the difference between interest income generated by loans and interest paid on deposits divided by their total assets.

A high net interest margin is good because it helps a bank have a higher level of cushion on loans.

If the economic cycle decreases and insolvency increases in the future, higher net interest helps banks absorb a higher degree of shocks.

The lender’s net interest income also followed the same growth trajectory as it was up 15.93 percent to N184.74 billion in the period under review from N159.94 billion the previous year.

Net interest income is defined as the difference between interest revenues and interest expenses. Interest revenues are payments that the bank receives from their interest-bearing assets, and interest expenses are the cost of servicing interest payments to customers on their deposits.

As a result of the uptick in revenue, pre-tax profit spiked by 11.06 percent to N130.0 billion in June 2022 from N117.05 billion the previous year.

The improvement at the bottom line (profit) was supported by non-trading revenue as the lender turns to fee income through the deployment of latest technology.

Non-interest revenue spiked by 40 percent to N149.64 billion as at June 2022, thanks to the bank’s success in its income diversification strategy.

Fees and commission income increased by 35.21 percent to N64.44 billion in the period under review as against N47.66 billion the previous year.

Zenith bank is focused on advancing its digital banking strategy anchored on a strong technology base, and intends to consolidate on the gains achieved in prior years across all business segments. Combined with the Group’s industry leadership, we expect this to drive improved performance and deliver enhanced returns to stakeholders.

It is important to note that the lender and its peer rivals are benefitting from the gradual improvement in the yield environment and the hawkish stance of the central bank that seeks to tame rising inflation bound well for stocks as it expected to underpin earnings.

The Central Bank of Nigeria, CBN raised the monetary policy rate (MPR), which measures interest rate, from 13 percent to 14 percent.

The Nigeria 10 year government bond has a 12.79 percent, according to World’s Government Bonds.

Strong Focus on Risk Management pays off as NPL below threshold

The bank adopts a complete and integrated approach to risk management that is driven from the Board level to the operational activities of the bank.

Little wonder the Non-Performing Loans (NPLs) came in at 4.40 percent, which is lower than the 5 percent regulatory benchmark.

Zenith Bank’s gross loans grew 5.15 percent year on year (YoY) to N3.66 trillion as at June 2022, propelled by both corporate and retail lending activities.

Customer base was up 10.95 percent to N7.15m trillion in the period under review from N6.47 trillion as at June 2021. The 10.95 growth in customers’ deposits in the half year is a reflection of the increasing confidence in the Zenith brand.

Interestingly, the lender’s solid and high-quality capital position provides room for further growth, and a high quality balance sheet with diversified funding sources means it is well positioned to absorb macroeconomic shock.

Prudential ratios such as liquidity and capital adequacy also remained stable and well-above regulatory thresholds at 60.5% and 21.0% respectively.

Consistent and Growing Dividend Payout validates strong yield

Zenith Bank has maintained a steady dividend policy, which is why it has one of the highest dividend paying stocks in Nigeria, with an attractive yield that allures investors who are keen on magnifying their earnings.

It has a price to earnings multiple of 2.73 and a dividend yield of 14 percent, and analysts at CSL Stockbrokers in a latest report placed a Buy recommendation on the stock with a target price target of N37.20/s. Current Price N22.00/s.

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