Tuesday, May 17, 2022 / 09:00 AM / Ademidun Shogo, Proshare Research / Header Image Credit: The SUN Nigeria

The Q1 2022 result of Zenith bank Plc showed a slight improvement in its top-line and bottom-line earnings. Return on average assets, however, dipped a notch. The bank seems to have had difficulties optimizing its asset in the first quarter (Q1), with the added problem of rising costs reflected in its higher cost-to-income ratio (CIR). 

The bank's impairment charges trended downward while non-performing loans declined by two notches or two basis points.

Key Highlight

• Revenue appreciated by +21.75% (Y-o-Y) in Q1 2022 from N157.3bn in Q1 2021 to N191.5bn
• Profit before tax grew slightly by +11% (Y-o-Y) in Q1 2022 to N67.1bn from N61.0bn recorded in Q1 2021
• Profit after tax increased by +9.68% (Y-o-Y) from N53.1bn in Q1 2021 to N58.2bn in Q1 2022
• Impairment Charges rose by +75.33% (Y-o-Y) in Q1 2022 relative to Q1 2021
• Earnings per share increased by +9.47% from N1.69 recorded in Q1 2021 to N1.85 in Q1 2022
• Operating expenses grew upward by +22.68% to N54.3bn in Q1 2022 from N44.2bn recorded in Q1 2021
• Retained Earnings increased by +34.53% (Y-o-Y) in Q1 2022 to N657.7bn
• Intangible assets inched up by +55.44% (Y-o-Y) from N15.6bn in Q1 2021 to N24.3bn in Q1 2022 
• Total assets grew by +18.89% (Y-o-Y) from N8.68bn in Q1 2021 to N10.32bn recorded in Q1 2022.
• The non-performing loan ratio rose marginally by +0.48% (Y-o-Y) from 4.20 in Q1 to 4.22 in Q1 2022.
• Return on average asset (ROAA) declined by –4.00% from 2.50 recorded in Q1 2021 to 2.40 in Q1 2022.
• Shareholder's equity increased by +21.85% from N1,091.8bn recorded in Q1 2021 to N1,330.4bn in Q1 2022
• Cost-to-income ratio expanded by +3.38 to 55.00% in Q1 2022 from 53.20% recorded in Q1 2021
• Return on average equity (ROAE) declined in Q1 2022 by -7.29%, from 19.20% in Q1 2021 to 17.80% in Q1 2022.

Share Price Movement 

Zenith Bank Plc's share price fluctuated year-to-date (YTD), reflecting the high volatility of economic activities in the first quarter of 2022 as inflation rate steadily rose.

The bank's share price rose to a resistance price of N27.35 per share at the beginning of February 2022 and then plunged to a support price of N22.75 at the start of April 2022. The dip resulted from the dividend payment to shareholders on April 6, 2022 (see chart 1 below). 

Chart 1: Zenith bank Plc's Share price movement (April 2021-May 2022)

 Source: NGX, Proshare Research  

Gross Earnings

Zenith Bank saw a considerable increase in gross earnings for the first three months of 2022 compared to the -5.70% (Y-o-Y) decline recorded in Q1 of the previous year. 

The gross earnings grew by +21.75% (Y-o-Y) in Q1 2022 from N157.309bn in Q1 2021 to N191.523bn, indicating the highest in the past five years (see chart 2).

Chart 2: Zenith bank Plc's Gross Earnings Q1 2019-Q1 2022 (N'bn)

Source: NGX, Proshare Research  

The bank's interest income rose by +20.89% (Y-o-Y) in Q1 2022 compared to the corresponding quarter in 2021, and interest expenses rose by +43.52% (Y-o-Y) in Q1 2022. The faster growth in interest expense relative to income suggests that the bank may need to address its high cost of its deposits and the relatively slow growth of its loans and advances while keeping an eye on non-performing loans (NPLs).

Profit before tax (PBT)

The Profit before tax grew by +11.00% (Y-o-Y) in the first quarter of the year to N 67,991bn from N61,022bn recorded in Q1 2021. The Profit before tax yielded a significant growth following the subsequent lower figures recorded in the preceding years (See chart 3). 

Despite the increase in the operating expenses by +22.68% (Y-o-Y) in Q1 2022 from N44,249bn to N54,283bn and the +16.09% rise in the personnel expenses, the Profit before tax still had a positive value. 

The increase in treasury bill trading income by +126.9% from N14,542bn in Q1 2021 to more than double the value of N33,003bn also contributed to PBT growth. 

Chart 2: Zenith bank Plc's Profit before tax Q1 2019-Q1 2022 (N'bn)

Source: NGX, Proshare Research  

Impairment Charge

The Q1 2022 result reflected a significant rise in the impairment charge and the highest figure across the five years (See chart 4 below).

The impairment charge surged by +75.33% (Y-o-Y) to N6.76bn in Q1 2022 compared to N3.86bn recorded in 2021 Q1. The surge in impairment charge can be attributed to the rise in the loan and advances from N284.2bn recorded in Q1 2021 to N355.3bn in Q1 2022 by +25.03% (Y-o-Y).

Chart 4: Zenith bank Plc's Impairment charges for Q1 2018-Q1 2022 

Source: NGX, Proshare Research   

Asset base

The group's total assets increased between Q1 2018 and Q1 2022. Total assets grew (Y-o-Y) by +18.89% from N8.68bn in Q1 2021 to N10.32bn recorded in Q1 2022. The growth was achieved by the notable rise in cash and balances from the central bank, investment securities, and treasury bills (See chart 5).

Chart 5: Zenith Bank Plc's Total asset for Q1 2018-Q1 2022 (N'bn)

Source: NGX, Proshare Research  

Investment securities rose by +29.93% (Y-o-Y), treasury bills grew by +20.50% (Y-o-Y), with a slight increase in cash & balance from the Central Bank of +8.81% in Q1 2022. 

Non-Performing Loans (NPL)s

The non-performing loans ratio (NPLR) for the first quarter of 2022 reflected a marginal increase of +0.48% (Y-o-Y) from 4.20 in Q1 2021 to 4.22 in Q1 2022. The rise showed a slight tip in the bank's bad debt, although the ratio was within the CBN's regulatory threshold of 5%.

Within the five years between 2019 and 2022, Q1 2019 saw the highest NPLR, while Q1 2021 saw the lowest ratio. (See Chart 6).

Chart 6: Zenith bank Plc's Non- Performing Loan Ratio for Q1 2018-Q1 2022 (%)

Source: NGX, Proshare Research