Focus for the week: Zenith Bank FY’24 Earnings Release – Strong earnings growth amid elevated cost pressures

Zenith Bank Plc delivered a stellar financial performance in FY’24, with gross earnings surging by 86.0% y/y to N3.97 trillion (Vetiva estimate: N4.2 trillion) from N2.7 trillion in FY’23. This impressive growth was driven by a 138.0% y/y increase in interest income, which reached N2.7 trillion (Vetiva estimate: N2.9 trillion), benefiting from elevated benchmark interest rates, as the bank recorded a 126.0% y/y rise in loan and advances of N1.5 trillion and an uptick in T-bills and investment securities income to N1.0 trillion.
While interest income exhibited strong growth, interest expenses surged 143.0% y/y to N992.5 billion (FY’23: N408.5 billion), driving the cost of funds (CoF) higher to 4.6% (FY’23: 3.1%). This increase reflects the impact of rising deposit costs and higher wholesale funding rates in a tighter monetary environment. Nevertheless, despite the elevated funding costs, Zenith Bank effectively repriced its loan portfolio and optimized asset yields, supporting an expansion in net interest margin (NIM) to 8.8% (FY’23: 7.6%).

Credit Quality: Higher provisions, but improved NPL ratio
Loan loss provisions increased by 61.0% y/y to N658.8 billion (FY’23: N409.6 billion) as the bank adopted a more conservative provisioning strategy amid macroeconomic uncertainties. However, the non-performing loan (NPL) ratio improved to 6.8% from 7.6% y/y, indicating progress in managing delinquent loans through recoveries and risk-adjusted lending practices.

Non-interest revenue moderates on FX revaluation losses
Total non-interest revenue (NIR) grew by 20.0% y/y to N1.1 trillion (FY’23: +141.2% y/y), tempered by a substantial N206 billion foreign exchange revaluation loss, which had previously bolstered earnings in FY’23. Nevertheless, trading income nearly doubled, rising 94.0% y/y to N1.1 trillion (FY’23: N566.9 billion), while fee and commission income expanded by 29.3% y/y to N375.2 billion (FY’23: N290.1 billion), supported by increased transaction volumes and greater adoption of digital banking services.

Rising operating expense weigh on cost efficiency
Operating expense surged 88.0% y/y to N843.4 billion (FY’23: N449.0 billion), outpacing operating income growth and weakening cost efficiency. The rise was driven by personnel expenses (N204.2 billion), higher regulatory costs, and fuel expenses (₦100.0 billion), reflecting inflationary pressures and rising operational costs. Consequently, the cost-to-income ratio (CIR) increased to 39.0% (FY’23: 36.0%).

What shaped the past week?
Equities:This week, the local equity market traded in the red, posting a 0.14% w/w loss, closing at 105,511.89 points. The Insurance sector led the decline, falling 4.13% w/w, as losses in SUNUASSUR (-13.38% w/w), UNIVINSURE (-13.33% w/w), and INTENEGINS (-7.41% w/w) weighed heavily on the sector. The Oil and gas sector also saw a drop of 1.18% w/w, primarily driven by a decline in OANDO (-13.13% w/w). The Consumer Goods sector declined by 0.91% w/w, with sell-offs in UACN (-18.31% w/w) and NASCON (-8.60% w/w). On a positive note, the Banking sector edged up by 0.22% w/w, buoyed by gains in FIDELITYBK (+5.00% w/w) and WEMABANK (+2.80% w/w).
Fixed Income: System liquidity opened the week at N1.5 trillion and ended at N970 billion positive, resulting in flat funding rates at 26.50%. In the secondary market, trading in NTBs and OMOs was subdued, with investors taking a cautious stance ahead of the Q2 NTBs calendar. Similarly, the bond market saw muted activity as investors remained on the sidelines, awaiting higher yields. However, slight bullish sentiments were seen on the short end of the benchmark curve, with buying interest in the 5-Year bond.

Currency: At the NAFEM, the Naira depreciated by N30.02 w/w to close at N1,567.02 per dollar.

Domestic Economy:
Nigeria’s foreign exchange inflows rose by 20.62% in Q4 2024, reaching $27.81 billion, up from $23.06 billion in the previous quarter, according to the Central Bank of Nigeria’s latest report. Autonomous sources played a major role in this increase, with inflows jumping 47.55% to $16.27 billion. However, inflows through the CBN declined by 4.05% to $11.54 billion. Despite higher foreign exchange outflows, which rose by 31.37% to $10.42 billion, Nigeria still saw a net positive inflow, growing 14.99% to $17.39 billion. The Nigerian Foreign Exchange Market also saw a 75.17% increase in turnover, reflecting more trading activity, though the naira depreciated by 2.13% to N1,623.26/$ due to rising demand. Looking forward, the CBN expects Nigeria’s economy to grow faster, driven by naira stability, improved oil production, and ongoing reforms. Inflation is also projected to moderate starting Q1 2025, aided by tighter monetary policies and food security improvements. However, risks remain from potential exchange market pressures, rising money supply, and inflationary shocks.
Global: U.S. stock market index futures dropped sharply on Friday, signaling another wave of selling on Wall Street, after China announced additional tariffs on all U.S. goods in retaliation to the Trump administration’s sweeping trade levies, escalating the global trade war. China’s finance ministry stated that it would impose a 34% tariff on all U.S. goods starting April 10, following President Trump’s decision to raise tariffs to their highest levels in over a century this week, triggering a sharp decline in global financial markets. As at the time of this report, the benchmark S&P 500 dropped 4.8%, its largest one-day percentage decline since June 2020, after Trump imposed a 10% tariff on most imports into the United States and much higher levies on dozens of other countries. The Dow Jones Industrial Average declined by 4.3%, while the tech-heavy Nasdaq Composite dropped around 5%, on pace to close in bear market territory. In the bond market, the U.S. 10-year Treasury yield was down 13bps to 3.93%.
In the Eurozone, the pan-European Stoxx 600 shed 5.12% to 496.3ppts, marking an 8% weekly loss, the worst since March 2022, amid fresh US tariffs and growing recession fears. Finally, in Asian markets, China’s Shanghai Composite Index was closed on Friday for a holiday in the country, while Japan’s Nikkei 225 was down by 2.75%.

What will shape markets in the coming week?
Equity market: Given the limited shift in key buy-side market drivers, we expect market sentiment to remain mixed in the coming week. However, the possibility of bargain hunting in large-cap names cannot be ruled out, which could provide some upward momentum for the index. Also, as some stocks approach their dividend qualification dates, we may see more buying interest that supports a positive tone.
Fixed Income: Next week, we anticipate a continuation of cautious trading activity across the market, as investors position ahead of the NTB auction scheduled for Wednesday.