Zenith Bank Saves Cost To Build N106bn Profit At H1

Zenith Bank Plc applied cost-saving actions to remedy persisting revenue weakness, which enabled its management to build an after-tax profit of N106 billion at the end of half-year operations.

The bank faced revenue constraints in the second quarter and its half-year operations closed with gross earnings flat at N345.6 billion. Its audited accounts for the six months ended June 2021 show that interest income continued declining but some improvements in non-interest revenue lines covered up much of the loss in interest income.

Interest earnings reduced the pace of decline at 6 per cent year-on-year to N204 billion at a half year from a drop of 11.5 per cent in the first quarter. Net fee and commission income remain the only reasonably growing income line of the bank so far this year, which rose by 42 per cent year-on-year to the region of N48 billion.

The two developments worked to improve the bank’s overall revenue performance at half a year compared to the position at the end of the first quarter. Against a drop of N9.5 billion or about 6 per cent in gross earnings in the first quarter, the bank closed the half-year trading with only a marginal decline in gross earnings.

The bank’s management retained its cost management stringency against the improvement in revenue performance in the second quarter. This provided it with a mild strength to push profit marginally up from flat revenue during the review period.

Two major cost lines of the bank again afforded it significant savings that enhanced the ability to convert revenue into profit as happened in the first quarter.

The first is interest expenses, which dropped by 26 per cent year-on-year to N44 billion at the half year. This involves a cost reduction of N15.5 billion – which is a sustaining drop in the cost of funds for the bank for the fourth year running.

The proportion of interest income devoted to interest expenses went down from over 27 per cent to 21.6 per cent over the review period.

With the big cost-saving from interest expenses, Zenith Bank maintained the course of raising net interest earnings from a drop in interest income. It closed the half-year operations with net interest earnings of roughly N160 billion, which is a moderate improvement year-on-year.

The second major cost-saving area is loan impairment expenses, which also maintained a course of a turnaround from a major increase last year to a decline at half a year. The rate of decline in loan losses accelerated from 2.4 per cent in the first quarter to over 17 per cent at half-year to close at N19.8 billion at the end of June.

However, the figure represents a rapid growth from only N3.8 billion recorded at the end of the first quarter. This indicates that further cost-saving from loan impairment expenses may thin out in the second half of the financial year. A slowdown from two years of rapid increases in loan loss expenses still looks possible for the bank at full year.

Total operating cost maintained its rising trend at half-year at 10 per cent increase year-on-year to about N150 billion, claiming over 43 per cent of gross earnings at a half year compared to 39 per cent in the same period last year.

With the cost saved from the drop in interest expenses, Zenith Bank was able to keep profit slightly improved at the end of half-year though its revenue weakness remained. The bank improved profit margin slightly at 30.7 per cent at the end of June.

Zenith Bank closed the half-year operations with an after-tax profit of N106 billion, which is an improvement from N103.8 billion in the same period in 2020. The summary of the bank’s earnings story for the first half of the 2021 financial year is its ability to improve profit in the face of revenue constraints.

Zenith Bank closed the half-year with a balance sheet of N8.5 trillion, comprising mainly customer loans and advances of N2.8 trillion, treasury bills of N1.7 trillion and cash and bank balances of N1.4 trillion. Other key assets are investment securities of over N1 trillion, due to other banks of N656 billion and pledged assets of N394 billion.

Asset expansion is financed mainly by an injection of N430 billion in customer deposits over the six months of the year to N5.7 trillion at the end of half-year.

Insidebusiness.ng