Despite the challenging operating environment, Zenith Bank surpassed analysts’ expectations as its profit-before-tax soared 38 per cent year-on-year to ₦231.7 billion in 2018.
The bank grew profit-after-tax by 11.30 per cent to ₦193.42 billion during last financial year, compared to ₦173.79 billion in 2017, declaring a final dividend of ₦2.50 per share, having earlier declared ₦0.30 interim dividend.
The better-than-expected performance of Zenith Bank was underpinned on significant drop in interest expenses, which declined by 33.32 per cent to ₦144.46 billion in FY’18 (₦216.64 billion in 2017).
It also recorded great success in lowering its provision for impairment charges to ₦18.37 billion was made in 2018, instead of ₦98.23 billion provided in the previous.
“The 2018 full year audited report released by Zenith Bank Plc showed an impressive performance as figure for bottom line beat our forecast by 4.16 per cent,” Moses Ojo, Head, Business Development and Research, Pan-African Capital noted.
However, the slow growth in Nigeria’s economy affected the commercial lender’s interest income and non-interest income during the period, causing gross earnings to depress by 15.41 per cent to ₦630.34 billion (vs. ₦745.19 billion in FY’17).
Nigerian economy grew just 1.9 per cent in 2018, but its population has been accelerating by 2.6 per cent, putting severe pressure on public infrastructures which have been begging for serious attention.
Interest and similar income declined by 7.28 per cent to ₦440.05 billion in FY’18 (vs. ₦474.63 billion recorded FY’17), mainly owing to compressed yields on assets and a reduction of 10.00 per cent in the loan book.
As a result of lower trading income and other operating income, non-interest income diminished by 29.67 per cent to ₦190.29 billion in FY’18 (vs. ₦270.56 billion in FY’17).
Ojo explained that despite the decline in gross earnings, the banking Group mitigated these knock-on effects through growth of its net interest income and lower provision for impairment charges during the period.
“Impressively, 12-month trailing EPS improved by 8.64% to ₦6.16. The bank proposed a final dividend of ₦2.50 per share (2017 Final dividend: ₦2.45) after the payment of ₦0.30 as interim dividend per share in 2018 (2017 interim dividend: ₦0.25), totalling ₦2.80 in FY’18 (FY’17: ₦2.70).
“Based on the recent figures released by the bank, we upgrade our target price per share to ₦34.23 (Previous target price: ₦32.06) and as a result, we maintain BUY rating on the stock,” he maintained.
Zenith Bank lowered its risk appetite in 2018, reducing its loans and advances by -13.20 per cent to ₦1.82 trillion during this period.
The bank, however, was able to rake in more cheap funds as customers’ deposits increased 7.34 per cent and its total assets was up 6.44 per cent to ₦5.96 trillion.
Its total liabilities raced up 7.46 per cent to ₦5.14 trillion.