THERE cannot be any doubt that over the past 16 years of its existence, Zenith Bank has succeeded in entrenching itself in the Nigerian banking industry as a leader in providing innovative customer services solutions. It has particularly played the pioneering role in bringing to existence most of the IT-based services that now dot the industry. Not only this, the Bank is constantly on the move technologically all in its desire to always move to the next level in the customer services strategy.
About a decade ago, the Bank became the first in the industry to offer on-line, real time services to customers. This revolutionalised customer services delivery and brought about unprecedented convenience in its wake as operators endeavoured to achieve maximum branch coverage with this service for competitive advantage.
Similarly, the Bank became the first to build its own website and went ahead to equip the site with substantial e-banking capabilities.
These pioneering roles inspired Zenith Bank to subsequently develop a number of other leading IT products such that the Zenith franchise has become synonymous with Information Technology in Nigeria.
Some of these products include Electronic Point of Sale, Zenith Flowline, Zenith Automated Direct Payment System, Etranzact, Zenith Siftpay, Z-Save Card, Z-Credit Card, Web-Surffer Card, Z-Travelex Cash Passport, Z-Mobile Commerce etc.
Perhaps, one other area it has of recent tried to replicate earlier technological successes is in the ATM technology. Some few months ago, it launched a unique and first ever branded ATM Gallery in Lagos. This is a virtual banking office, without human tellers, with capability to handle more complex transactions than the conventional ones.
With successful test-run of the Gallery in Lagos, the stage is set to launch in other selected locations and spread, the usual Zenith quality of services.
The effect of satisfied customers has reflected in multiple expansion of deposit base and number of customers. During the 2006 review year, deposit liabilities increased by as much as some N160 billion to N393 billion. Reports (yet to be validated) had it that the Bank hosted the most patronised ATMs in the Inter-switch platform with about 970,299 transactions. The Bank in the second position was credited with 874,864 customers.
It hopes to see at least 30 per cent literate Nigerians patronise ATM by 2011. Usage rate currently is still below five per cent. In fact, another independent study found that in Nigeria as a percentage of that of South Africa was as low as two per cent. Given its efforts to revolutionalise ATM usage, it is hoped that the situation will improve tremendously in a few years time.
Recently, Zenith Bank opened a banking subsidiary in Ghana with a pledge to replicate its customer-centric quality standards outside the shores of Nigeria. Interestingly, the Ghana subsidiary is first in the series of such investments planned between 2006 and 2011.
In order to use gross selling capabilities to achieve its broad goals, Zenith Bank has joined the rank of others that seek to become financial supermarkets. Accordingly, it set up subsidiaries to operate in the insurance, securities trading, pension custodian and registraship markets with the mandate to ensure uniform Zenith quality services to clients.
Apart from these key investments, another major area the Bank took major interest in 2006 is the small and medium-scale sector. During the period alone, it increased equity exposure to this sector by N1.16 billion to attain a total of N2.62 billion. But an important observation here is the preponderance of information, technology and telecom-related enterprises. This reflects in the known orientation of management.
But 2006, for Zenith Bank, was not all about customer satisfaction and technology. It emerged as one of the biggest spenders for social causes during the year.
Disturbed by the state of roads in the vicinity of its head office building, the bank collaborated with the government to reconstruct the road that pass through the office. This not only brought relief to the road users but also beautified the environment. But an area it made the most strategic intervention in its area of corporate social responsibility is in sports. Documented reports has it that it put in as much as N52.5 million into sports and N30.67 million to educational development.
The Bank considers these as necessary efforts to give back to a society that has given it so much.
Indeed, to have grown within a space of 16 years to achieve total asset plus contingencies of N715 billion through societal support, much is really expected.
Interestingly, the Bank achieved this balance sheet which put it in a position to contest for position of the biggest bank in Nigeria without active participation in the just concluded regulation-induced consolidation, and the growth in 2006 was indeed phenomenal.
EARNINGS AND PROFITABILITY
During the 2006 review year, the Bank grew gross earnings from N34.9 billion to N59.2 billion, the third highest volume reported in the industry for the year. As expected, interest income was dominant, accounting for 64 per cent of the total. But the interesting thing is that non-interest income continued on a slow but gradual increase in importance.
Hence interest income proportion declined to 64 per cent from 66 per cent in the preceding year. It was 67 per cent in 2003.
But direct interest cost of funds increased by almost 100 per cent to N10.5 billion, given the quantum leap in deposit liabilities, thereby giving rise to a marginal decline in gross interest margin from 75 per cent to 72 per cent. Though this remained in the top three, industry performance for the period, it reflected what looks like a sustained declining trend considering the 2003 and 2004 margins of 81 per cent and 79 per cent respectively.
But due to what appears to be exceptionally good performance in risk management, the indirect cost of provisions for risk assets declined from N1.97 billion to N1.31 billion notwithstanding that loans and associated assets witnessed significant expansion.
This helped the Bank to sustain its high rating on managerial cost efficiency at a measure of 26 per cent, the same as in 2005, despite the overhead costs that saw a significant upward escalation.
But our proxy measure of efficiency in the use of assets to generate earnings was not that resistant as it declined from 21 per cent to 19 per cent. Again, this suggests the establishment of a declining trend having moved from 32 per cent in 2003 to 25 per cent in 2004, and to 21 per cent in 2005 as a result of successive increases in total assets.
The bottom-line effect is mixed. While all the absolute bottom-line figures increased, all the relative measures did not move in the desired direction.
Profit After Tax increased to N11.5 billion in 2006 from N7.2 billion during the preceding year which also translated to increase in earnings per share from N1.19 to N1.25. However, return on average shareholders‚Äô fund declined from 27 per cent to 17 per cent. This was, however, explained by the late receipt of the public offer made by the Bank in 2006. Cash dividend paid to shareholders on the other hand increased to 72 kobo per share from 70 kobo. To the shareholders, the board made an abiding commitment to maintain a friendly dividend policy. This commitment was certainly met in 2006.
CAPITAL BASE AND ADEQUACY
As other banks tried to utilise a combination of the primary capital market and mergers to meet regulatory requirements during the last consolidation, Zenith Bank busied itself essentially with the former. In fact, the bank was one of the few that exclusively followed this path. But over the last 2 years, Zenith Bank visited the market twice and on each occasion came out with substantially over-subscription of its share, an indication of over-whelming confidence of the market and endorsement of its wealth creation potentials.
As at 30th June 2006, the bank attained the shareholders fund level of N93.8 billion, up from N37.8 billion in 2005. Prior to consolidation in 2004, it stood at N15.7 billion. The quantum leap in capital base as a result of the two pubic offers gave impetus to the bank‚Äôs massive business expansion just as it ensured that Zenith became the second most capitalised bank in the industry to date. It also ensured that confidence of stakeholders on the bank as a safe financial institution continued to soar. In fact, the benchmark weighted Risk Asset Ratio jumped to 33% from 23% in 2005 and 19% in 2004. In fact, results in the best safety margin implied by capital base in the last five years and may ordinarily provide prudential support to expand risk assets by more than 200 per cent although it will not singularly guarantee that Prof. Chukwuma Soludo will hand over part of the nation‚Äôs foreign exchange to the bank to manage.
ADHERENCE TO QUALITY
Figures from the bank‚Äôs annual reports suggest that this is one area Zenith Bank has in the past five years performed almost excellently in virtually all key measurement criteria.
This is perhaps because, in the management of risk, the bank adopts the pro-active rather than remediation approach.¬†The Risk Management Structure is clearly defined at all levels of oversight, compliance, process review and approval.
In fact, the bank has gone ahead to build capacity to handle issues relating to the Risk-based supervisory framework being proposed under the Basle II Accord. With this culture, it is not a surprise that its non-performing loans ratio was just 1 per cent in 2006, down from 2% in 2005. In fact, it was approximately at par with the highest quality performance of 2003 and 2004 when only one in an average of one hundred loan assets turned out doubtful at the end of the financial years. Interestingly, only one other bank in the industry could equal this.
Also, on the Asset liability parity, Zenith tries to maintain adequate capacity to meet maturing obligations and regulatory requirements. To ensure this, portfolio has always been constructed in line with risk aversion principles with proportion of adjusted risk asset consistently at below industry average levels. It was 39% in 2006, having declined from 45% in 2005 and was as low as 32% in 2003.
Analysts contend that though this may not be pareto efficient from macro-economic perspective, it improves balance quality for the bank. Adjusted liquidity ratio increased sharply in 2006 from 64% to 74% arising largely from the fact that substantial portion of new funds that came in during the re-capitalisation period were yet to be fully deployed.