Zenith Bank’s 2011 full year result has given hope to investors in the Nigerian capital market that all is not about negative news in the financials of banks in the country. The bank has declared a dividend of 95 kobo per share. This is modest compared to the past dividend payout by the bank. In the recent past, banks have been struggling with huge provisions for doubtful debts that have eaten up whatever profits they would have made from their operations. The cleaning up of banks books has taken its toll on investors that staked their monies in shares who have to go without dividend. Zenith Bank from an investor perspective is a well-capitalised bank with ample but under-utilised liquidity because of management’s hesitation to expand beyond the blue-chip segment.
Its shareholders’ fund from which provisions were made remained very strong at N361 billion from its 2010 position of N350 billion. The bank’s shareholders’ fund was N328 billion in 2009 and N338 billion in 2008. Its deposit base, a mark of its market share has grown from N1.29 trillion in 2010 to N1.576 trillion in 2011. The bank’s deposit base surpassed the pre-2008 base of N1.164 trillion. Zenith Bank’s share is good for even long-term core investor’s holding.
Those familiar with the recent history of the industry will realise that right from the 2008 financial crisis and the reform of the sector, the banks have been on the receiving end. Some big names among the new generation banks have gone under as a result of the financial crisis. In fact, out of the 25 banks in the country, only 20 are still standing with one or two standing on one leg. Many have not fully recovered. But from the result posted by Zenith Bank, it appears there is a silver lining for the industry. Zenith Bank in its 2011 financial year end result posted Profit Before Tax (PBT) of N60 billion which represents an increase of 21 per cent over the N50 billion recorded in the corresponding period of 2010. N43 billion was also recorded in PBT in 2009; N32 billion in 2008 and N49 billion for the financial year 2007.
The bank has shown some level of consistency in its result despite the prevailing difficult terrain and tough regulations banks have had to contend with. Zenith’s Profit After Tax (PAT) for the period stood at N44 billion over N37 billion in 2010, an increase of 18 per cent. In 2009, profit after tax was N33 billion, N18 billion in 2008 and N47 billion in 2007 before the global financial crisis and the Lamido Sanusi’s shock treatment of the sector that hit the industry most hard.
Following what financial analysts have described as an impressive performance considering the difficult operational terrain, the bank has proposed a dividend pay-out of N29.8 billion up from N26.7 billion paid out in 2010. The result, the first in the banking industry, which was released on the floor of the Nigerian Stock Exchange (NSE) in Lagos last Friday, shows the bank’s gross earnings rose by 27 per cent to N244 billion, from N192 billion in 2010, while N277 billion was recorded in 2009 and N212 billion in 2008. This is an indication that the bank is consistent in its avowed vision of an increasing dominance in its market share.
Over the period, the bank also grew its total assets (plus contingents) by 25 per cent to N3.5 trillion from the N2.8 trillion of the previous year. The result also shows the bank’s prudent approach to loan management as total non-performing credit facilities to total credit facilities stood at 4.00 per cent, an improvement over the 5.53 per cent recorded last year. Net Interest Margin increased to 8.5 per cent in 2011 financial year end from 7.8 per cent in 2010. This highlights the bank’s ability to manage its funding cost resulting from its ability to generate cheap deposit liability.
It is noteworthy, however, that the bank’s impairment charge increased to N24.3 billion compared to N4.3 billion in 2010 Financial Year. The increase was largely caused by the N10.2 billion general provision on Performing Credit Facilities and the haircut of about N5 billion on some legacy loans sold to the Asset Management Company of Nigeria (AMCON) and further downgrade of already provisioned loans. This provision, though a strain in the bank’s profit, is a safeguard of shareholders’ interest in the bank and not lost completely as recovery of the loan facilities concerned in the future will boost profit and shareholders’ fund.
The provision on Performing Credit Facilities was waived for all banks in 2010 by the Central Bank of Nigeria to aid recovery from the huge provisions of the previous year on Capital Market facilities. The bank in making the general provisions on performing loan facilities, took some conservative positions by booking its provisions at higher than 1 per cent, a push towards returning provisions coverage to historical high level. Only last February, the bank emerged number one with highest capitalisation on the Nigerian Stock Exchange (NSE) with market capitalisation of N424 billion. Zenith Bank is targeting at least 15 per cent Return on Equity (RoE) in 2012, up from 11.6 per cent in 2011. This target is in line with previously published forecast of 15.2 per cent.
By this performance, Zenith Bank is showing that there is light at the end of the tunnel into which the Nigerian banks were plunged as a result of the global financial crisis and the crash of the Nigerian stock market in 2008. The bank has upped the stake for others, only time will tell if the entire industry will follow the Zenith footprint.