September 23, (THEWILL) – Zenith Bank Plc, Nigeria’s largest financial services institution by market capitalisation (currently N1.04 trillion), raked in N967.25 billion revenue in the first half of 2023.
This has put it on a spotlight at the Nigerian Exchange (NGX) where excited investors have bought heavily into it as a mark of increased confidence in the lender’s stock.
Although bargain hunters are on the lookout for well-performing stocks at the equities market, the unusually high revenue impacted favourably on the institution’s profit, asset base and earnings per share – among the key metrics that attract investors. The result is that the stock value has soared among its peers.
Zenith began the year with a share price of N24.00 and has since gained 37.5% on that price valuation, ranking it 69th on the NGX in terms of year-to-date performance. The current share price is N33.00. The stock closed its last trading day (Wednesday, September 20, 2023) at N33.00 per share on the NGX.
“Zenith Bank was not the only financial services institution that recorded huge earnings from the recent forex revaluation policy. However, the development boosted investors’ confidence in the stock which is listed in the special Premium category of the NGX”, said Peter Akalonu, a financial analyst.
According to Akalonu, the stock has been ‘fiercely active’ in the past few months because of the huge volume it traded on the Exchange, better than where it started at the beginning of the year.
Checks showed that Zenith Bank is the 11th most traded stock on the NGX over the past three months (Jun 22 – Sep 20, 2023). The stock has traded a total volume of 1.35 billion shares—in 25,216 deals—valued at NGN 46.2 billion over the period, with an average of 21.5 million traded shares per session.
A volume high of 75.4 million was achieved on September 4th, and a low of 4.62 million on August 28th, for the same period. The 2023 half-year results showed that the earnings per share (EPS) rose to N9.29 from N3.55 in the corresponding period of 2022.
“You can see the impact of the phenomenal revenue growth on the stock performance”, Akalonu pointed out in a telephone response.
The revenue haul, driven majorly by the forex revaluation windfall for the banks, exceeded the N404.72 billion posted in HY 2022 with N562.53 billion, representing a 139 percent increase.
This pushed the Premium Market quoted Tier-1 lender’s bottom line to a phenomenal level. Its profit before tax (PBT) rose by 177.2 percent to N360.36 billion in HY 2023 from N130 billion it had in HY 2022. Consequently, it comfortably coasted home with a profit after tax (PAT) of N291.73 billion from N111.41 billion in the equivalent period of 2022 which is a 161.8 percent increase.
Obviously, investors took note of the assets tremendous rise in one swoop, from N12.85 trillion as of December 31, 2022 to N16.03 trillion in six months ended June 30, 2023 representing a 24.7 percent increase. As usual, investors have taken position towards the imminent earning season effectively commencing in the fourth quarter through the first quarter of next year. This largely accounts for the impressive performance of Zenith Bank’s stock.
Analysts believe that the revenue haul will have a lasting positive effect on the performance of the bank for the rest of the year as the key metrics favour it. “The figures speak to the fact that the lender is in a good stead notwithstanding the regulatory checks by the monetary policy authorities,” said Akalonu.
The forex reform introduced by Nigeria’s new government on June 14, 2023 abolished the multiple forex channels which had created lots of distortions.
Unifying the several segments under the aggregated official Investors’ and Exporters’ (I&E) window initially narrowed the wide gap between the official and parallel markets. But it resulted in a 63 percent devaluation of the Naira which traded at N473/$ before the new policy.
Along the line, the Naira traded at par with the parallel market before taking a huge dive into the devaluation stream. The local currency closed at N773/$ on Thursday at the I&E window while it plunged to N965/$ at the parallel market – a significant gap of N192. This has rekindled the worry that attended the former forex regime where dollar scarcity was in vogue. Unfortunately, the economy is back to ‘square one’.
“Until we address the supply type, the gap will continue to increase because Nigeria’s appetite for imports has become chronic and little is being done to boost local production.
“The refineries are not functioning; there is low electricity supply, non-oil export is not significant to earn the required fore. The entire business environment is in a disarray. How do you earn forex?” queried Dr Kelly Esimugo, a Developmental Economist.
Giving further insight into the half-year result, Zenith Bank said the growth in gross earnings arose from both interest income and non-interest income. Interest income grew by 72 per cent from N241.7 billion in H1 2022 to N415.4 billion in H1 2023, while non-interest income grew by 246 per cent from N149 billion to N515.7 billion.
The growth in interest income is attributed to the impact of both the growth and repricing of risk assets. The liberalisation of the foreign exchange market during the period spurred the growth in non-interest income as revaluations gains improved significantly.
In terms of efficiency, cost-to-income ratio improved from 58% to 38.5% in the current period on the back of an enhanced income line. The liberalisation of the foreign exchange market coupled with the heightened risk environment resulted in cost of risk growing from 1.4 per cent to 8.8 per cent. Cost of funding also grew YoY from 1.4 per cent in H1 2022 to 2.6 per cent in H1 2023 because of the spike in interest rates between both periods as interest expense grew from N57 billion in H1 2022 to N153.6 billion in H1 2023.
Loans and advances also grew by 32 per cent from N4.12trillion in December 2022 to N5.38 trillion in June 2023 partly due to the revaluation of the foreign currency denominated loans as well as growth in local currency loans.
Non-performing loans ratio improved from 4.3 per cent to 3.9 per cent in December 2022 despite the deterioration of the macros and heightened risk environment because of the currency mix of risk assets. Capital adequacy ratio improved from 19.8 per cent to 22.0 per cent, while liquidity ratio reduced from 75 per cent to 61 per cent in the current period. Both prudential ratios are still well above regulatory thresholds.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
