Foreign currency revaluation gain has spurred Zenith Bank to recorded a double digit growth in profit thus beating analysts’ expectation.
Analysts say Zenith Bank is better placed to attract investors due to its reputation for strong risk management, strong capital base and its ability to effectively utilize shareholders resources to bolster profit.
For the first nine months through September 2016, Zenith Bank’s net income increased by 20.45 percent to N100.07 billion as against N83.05 billion. Operating profit moved by 13.30 percent to N262.62 billion as against N231.78 billion last year.
The growth at profit was due to a 323.63 percent surge in foreign exchange revaluation gain to N31.01 billion as most tier 1 lenders in Africa’s most populous nation have had earnings underpinned by the sudden devaluation of the naira by the apex bank.
The central bank in June adopted a flexible exchange rate policy after pegging the currency at N197-N199 for 15 months. That saw the naira lose 40 percent of its value to the US currency.
The market immediately reacted to Zenith Bank’s impressive performance as share price increased by 1.76 percent to N15 12:30 pm on the floor of the exchange, increasing market capitalization to N436.09 billion. Its stock was up +6.26 percent ytd, while price to earnings (P/E) ratio was 4.78xx.
Zenith Bank’s growth wasn’t limited to the bottom lines alone as interest income rose by 11.29 percent to N285.67 billion in the period under review.
Analysts attribute the growth at the bottom line to the lender’s effective pricing, increase in treasury bills, government and other bonds and interest on loans and advances.
Tier 1 lenders like GTBank and UBA also navigated the storm caused by a sharp fall in oil price and rising Non Performing Loans (NPLs) by beating analysts’ expectation with strong earnings in the third quarter.
The ratio of NPL to total credit rose to 11.7 percent at the end of June from 5.3 percent at the end of 2015, according to the CBN website. The ratio is above the 5 percent threshold set by the Abuja-based bank.
Moody’s investors Service said that it expects NPLs to increase to about 12 percent over the next 12 months.
Despite the macroeconomic headwinds ensnaring most companies in Nigeria, Zenith Bank showed resilience and remained efficient.Its net margins moved to 26.31 percent in 2016 from 24.63 percent as at September 2015.
The Nigerian lender is aggressive about lending amid liquidity squeeze as loans to deposit jumped to 90 percent in 2016 from 73.01 percent as September 2015.
Similarly, loans and advances to customers was up 31.52 percent to N2.42 trillion while deposit from customers moved by 6.74 percent to N2.69 trillion in the period under review.