Business
Zenith continues to maintain high profile performance
By Vanguard - Omoh Gabriel
Dec 19, 2005, 12:23

Zenith Bank has maintained a consistent record of impressive performance in virtually all indices of measurement in the first quarter of the 2005/2006 financial year ended on 30th September 2005. The result just released for the first quarter accords with the bank’s performance trend.

Just as the bank recorded unprecedented growth in balance sheet size, business earnings responded positively by increasing from N7.9 billion in the first quarter of 2004 to N12.416 billion in the first quarter of 2005/2006 which represents a most profound one-year growth of 56 per cent compared to contemporary growth figures. Like in the previous quarters, interest related income remained dominant as it accounted for 67 per cent of gross earnings, above the level recorded in the same period of 2004/2005. During the period, the bank stepped up lending activities by about 100 per cent resulting in steep growth in interest earnings.

However, notwithstanding this substantial rise in earnings, the efficiency with which resources were turned to earnings increased slightly in first quarter of 2005/2006 . This is a result of greater increase in balance sheet size during the period. On the cost side, both cost of funds and overheads witnessed comparable increases during the period at rates that fairly matched growth in resources and size.

But due to large volume of increase in gross earning, profit before tax rose considerably by 84 per cent from N1.641billion in the 2004/2005 first quarter to N3.018 billion in the first quarter of 2005/2006 financial year. Profit after tax also rose significantly from N1.323 billin to N2.444 billion. This translates into about 28 per cent return on average shareholders’ fund, which though could not match the previous performance of 37 per cent, is certainly a high end result in industry comparatives. It also surpassed projections of analysts and industry watchers.

The performance of the bank has led to the price of its shares remaining relatively high in the capital market. The bank which shares were listed last year at N10.90 rose to N20 before settling at N16 per share for which the price has remain.

Those who bought Zenith shares for speculative purposes made a kill when the share price hit the N20 mark. Even at the current price of N15 plus, share holders of the bank have experienced capital appreciation and those who kept their shares received a cash dividend of 70 kobo per shares.

To have sustained this high level of cash payment with almost double number of shares in use during the period shows Zenith as a bank always ready to reward shareholders handsomely.

Notably also, this impressive performance was achieved without compromising capacity to meet obligations to customers. Accordingly, the bank continued to maintain appreciably high liquidity levels. As at June 30, 2005, “Specified Liquid Assets” accounted for about 64 per cent of deposit liabilities considered vulnerable to sudden withdrawal demands by customers. This is far higher than minimum required liquidity ratio of 40 per cent but lower than 70 per cent recorded a year earlier.
Over the last few years, the bank also maintained risk management effectiveness that resulted in one of the best asset quality measures in the industry. In fact, on the average Zenith asset quality performance remain among the best three in the last five years. As at the end of 2005, and the first quarter of 2005/2006 financial year, only two about per cent of total loans and advances was classified as non-performing. This compares favourably with industry average of 23 per cent and is even better in 2004 at one per cent. This reflects the level of carefulness and professionalism with which credit facilities are worked out and administered in the bank.

In the course of the review period, virtually all banks had their capital adequacy ratios increased in line with expectations of the on-going bank reforms and Zenith Bank was no exception. In fact, the bank led the way to raise funds from the capital market after the relevant directive from CBN. In one of the most successful capital market offer and netted about N21.0 billion. In addition to retained earnings, this took shareholders’ fund to about N38 billion as at June 31, 2005. Apart from the two biggest banks in the industry, Zenith Bank effectively emerged as the third bank to scale the minimum capital of N25 billion.

Hence notwithstanding the massive expansion of risk assets during the period, risk weighted asset ratio increased from about 19 per cent in 2004 to 23 per cent as at end of the first quarter of 2005/2006 . All other capital adequacy measures witnessed similar positive movements.

ZENITH BANK AND CONSOLIDATION

With about N38.0 billion capital base, Zenith Bank obviously has the least worries concerning meeting the minimum capital requirements prescribed by CBN. Accordingly, the bank appears not to be in a hurry to enter the frenzy merging or acquiring other banks.

Although there have been talks linking it to a number of merger arrangements, industry watchers believe that the bank can only enter such arrangements found to be value enhancing.

In any case, the bank has put in place structures to appropriately handle post-consolidation issues. It started by strengthening the board and management with the appointment of four new executive directors. Corporate governance structures are also being up-graded to match international best practices and accord with its present status as a bigger-bank. The bank has accordingly not ruled out the possibility of making one or two acquisitions in the course of implementation of current reforms.

Since 1990, when it commenced business, Zenith Bank has been in the vanguard of a new revolution in the Nigerian financial landscape and is positioned to remain a key force in shaping the industry in the post-consolidation period. More than any other area, the bank, right from inception, embraced technology as a critical tool for effective customer services delivery.

To Zenith and members of top management, therefore, technological innovation has become a captive passion because of success and customer satisfaction it enabled the bank to achieve. By extension, this has given rise to an inimitable brand image of Zenith as an efficient institution because of the speed of processing customers’ transactions.

It is not surprising, therefore, that most of the bank’s investment under the Small and Medium-Scale Enterprises (SMEs) initiative went to Information and Communication Technology (ICT) and related business concerns. Some of them include Venus Telecom, Qubit Spectrum, Cyberspace Networks, Interswitch, Dmtev Computers, ATM Consort etc.
Obviously, the efficiency with which the bank handles the business of its customer have translated to increasing public confidence.

Of significance is that in a period when several banks contended with the lull associated with the recent banking reforms, deposit liabilities in the bank increased from N131 billion in 2004 to N233 billion as at end of 2005 financial year. This invariably reflects the verdict of customers regarding the bank’s state of financial health and future prospects.

It is interesting to observe that not even the traditionally ‘big banks’ witnessed this extend of endorsement during this challenging period in the life of the industry. Apart from depositors, investors also gave favourable endorsement of Zenith brand as a capital market prospect.

Following its extremely successful Initial Public Offer (IPO) in 2004, the stock witnessed tremendous demand pressure which catapulted the price from this listing value of N10.90 in October 2004 to N20.00 before adjusting to about N16.00 presently. This implies that, in addition to the generous dividends received during the period, shareholders got more than 40 per cent return on the minimum. Remarkably, from original handful of owners, the bank is now owned by more than 288,700 shareholders with attendant increase in investment value and stability.
The bank is now in the elite class of top 20 capitalised firms in the Nigerian Stock Exchange (NSE) and accounts for about five per cent of total market capitalisation.

With the increase in investment value and shareholders, Zenith has intensified its strategic growth efforts locally and internationally. Apart from the record it held as having the fastest growing branch network, it recently opened an off-shore subsidiary in Ghana in what is considered as the beginning of a phase in the globalization of the Zenith brand. Diversification is also an integral part of this growth strategy. The bank also acquired an insurance subsidiary which was re-christened Zenith General Insurance Ltd. This is in addition to Zenith Securities Ltd and Zenith Registrars Ltd which operates in the capital market. Indeed, Zenith Bank’s growth strategy has paid off.

As at June 2005, the bank’s total asset and contingencies closed at N370.72 billion, a level attained by only two other banks as at that date. With shareholders’ fund of N38 billion, the bank is now primed to even fast-track the growth process and compete for position of the biggest bank in Nigeria.



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