Despite a generally poor earnings season in which revenues remained significantly limited, Zenith Bank Plc was able to generate profit for shareholders in the six-month period ended June 2021. The bank’s audited accounts for half-year operations show that management implemented cost-saving measures to compensate for the low income.
Half-year operations ended with stable gross profit at 345.6 billion naira, but management managed to push after-tax profit from less than 104 billion naira in the same period last year to 106 billion naira at the end of June 2021.
The ability to defend profits against income constraints is a major achievement on the part of the bank’s management during the period under review. Its strategy is based on cost reduction actions that have improved the ability to convert revenue into profit.
Interest income has been the main driver of the bank‘s weak earnings since the start of the year, which has maintained a record low since the first quarter. Interest income fell 6% year-on-year to 204 billion naira in the first half, however a slowdown from an 11.5% decline in the first quarter.
An offsetting development came from improved non-interest income lines, offsetting much of the loss in interest income. This is mainly attributable to net fee and commission income, which has maintained reasonable growth so far this year. Fees and commissions increased 42% year-on-year to close at around 48 billion naira in the first half of the year.
With the slower rate of decline in interest income and the gain in non-interest income, Zenith Bank was able to improve its overall half-year income performance compared to the position at the end of the first quarter.
The bank ended the first quarter with a decline of 9.5 billion naira, or about 6% of its gross profits. The situation improved halfway through the year with only a marginal drop in gross income.
The bank’s management reinforced the strength gained in revenue performance with the rigor of cost management. This combination gave it the strength to push profit slightly up against stable revenues during the review period.
Management extracted cost savings from two of the bank’s main cost lines: interest charges and loan impairment charges.
Interest expense fell 26% year-on-year to N44 billion in the first half of the year. The decline represents a N15.5 billion reduction in the cost of funds and a significant drop in interest charges for the bank for the second year.
Interest expense claimed a reduced proportion of interest income at 21.6% in the six-month period compared to over 27% over the same period in 2020.
The second major line of savings for Zenith Bank in the middle of the year is loan depreciation, which reversed from a large increase of over 64% last year to a decline in half of the year. ‘year.
The rate of decline in credit loss expenditure accelerated from 2.4 percent in the first quarter to over 17 percent in the six-month period, closing at just under 20 billion naira at the end of June 2021.
The significant reduction in interest costs enabled the bank to improve net interest income following a decrease in interest income. At around 160 billion naira in the half, Zenith Bank achieved a moderate improvement in net interest income.
Despite the decline in loan losses in the first half, rapid growth was recorded in the second quarter, compared to just 3.8 billion naira at the end of the first quarter. The indication is that an increase in credit losses can be expected for the bank in the second half of the year.
The ability to save on loan impairment charges may therefore weaken in the second half of the year. Despite this, a slowdown after two years of rapidly increasing loan loss charges can still be expected for the bank in a full year.
With rising inflation, the bank couldn’t stop operating expenses from rising. Total operating expenses increased 10% year-on-year to around 150 billion naira, accounting for more than 43% of gross revenue from 39% in the same period last year.
Zenith Bank was able to achieve a positive expense / income balance for the first half, with a slight improvement in the result in the face of the inability to generate income. The bank made a modest gain in its net profit margin to 30.7% at the end of June.
The bank closed half-year operations with an after-tax profit of 106 billion naira, improving from 103.8 billion naira during the same period in 2020. Maintaining the ability to increase shareholders’ wealth despite the disappointments of earnings marks the resilience of the bank’s management quality. .
Zenith Bank has a balance sheet of 8.5 trillion naira, one of the largest bank balance sheets in the Nigerian banking space. Its assets are financed mainly by customer deposits of 5.7 trillion naira at the end of June 2021.