Economy
Zenith Bank Plc: Earnings Beat as Forex Income Spike Dwarfs Huge Provision
By Vetiva Research
- High interest rate environment lifts top line despite flat loan growth
- Elevated OPEX and Interest cost persist
- Provision in Power and Telecom assets pressure asset quality
Marked deviations from estimates as earnings beat
Zenith Bank released its audited H1’17 result posting marked deviations from our expectations across most line items. Notably, following a 58% q/q rise in Gross Earnings in Q2’17 standalone, the top line rose 77% y/y to ₦380 billion for the H1’17 period – beating our ₦282 billion estimate.
Particularly, despite a 3% decline in loans and advances, Interest Income rose 45% y/y to ₦262 billion (Vetiva: ₦226 billion) – supported by a strong interest rate environment. In the same vein, Interest Expense spiked 127% y/y to ₦123 billion following a significant uptick in cost of funds (H1’17: 6.4% vs. H1’16: 3.2%) – coming in higher than our ₦89 billion estimate.
Consequently, Net Interest Margin moderated 40bps y/y to 7.7% (Q1’17: 8.7%). More conspicuously, Non-Interest Income rose to ₦118 billion (H1’16: ₦34 billion) – dwarfing our ₦55 billion estimate.
Particularly, the bank recorded an FX trading income of ₦46 billion – largely driven by income from forward contracts within the period. Also, T-bills trading income rose significantly to ₦18.8 billion from ₦2.2 billion in the prior year.
Fee and commission income growth however came in more modest, up to ₦38 billion from the ₦31 billion recorded in H1’16.
Amidst rising NPL ratio (H1’17: 4.3% vs. Q1’17: 3.2%), ZENITHBANK reported a significant rise in loan loss provision, up 198% y/y to ₦42 billion vs. our ₦16 billion estimate. According to management, the increase in impairment charge was largely driven by higher provisioning across the Power and Telecoms sectors.
We recall that ZENITHBANK had the highest exposure to Etisalat and believe the bank must have taken a conservative approach to make provision for a portion of their exposure to the telecoms company.
Despite this, Operating Income rose 47% y/y to ₦215 billion–22% ahead of our ₦176 billion estimate.
Surprisingly however, Operating Expense rose substantially in Q2’17, up 54% q/q – a trend management attributed to inflation and currency pressure despite a relatively more stable FX environment and a sticky downward inflationary trend within the period.
Notwithstanding, PAT rose to ₦75 billion – beating our ₦65 billion estimate.
We highlight that ZENITHBANK restated its prior year’s profit, expensing an AMCON levy of ₦9.4 billion which had previously been capitalized.
Hence H1’16 PAT was restated to ₦35.5 billion (Previous: ₦44.8 billion).
Overall, the Board declared an interim dividend of ₦0.25 per share – same as prior year and in line with our estimate.
Earnings revised higher on higher interest rates
We have updated our model to reflect the marked deviations across most line items. Whilst we cut our loan growth forecast for FY’17 to a mild 2% (Previous: 8%), we raise our Interest Income estimate to ₦535 billion (Previous: ₦452 billion) – supported by the strong interest rate environment.
Similarly, we raise our Interest Expense forecast for FY’17 to ₦245 billion (Previous: ₦178 billion), pressured by the elevated funding cost.
Also, following the outperformance in H1’17, we revise our Non-Interest Income higher to reflect the spike in FX income from forwards and futures transaction recorded in Q2’17. Despite the raise, we remain conservative about the persistence of this income line in the coming quarters and taper down the run rate for the year.
Driven by the impairment in asset quality observed over the second quarter, we double our loan loss provision expectation for FY’17 to ₦66 billion (H1’17: ₦42 billion) – translating to a cost of risk of 2.9%. Furthermore, in line with the trend observed in Q2’17, we raise our Operating Expense estimate to ₦254 billion (Previous: ₦191 billion). Overall, our PAT forecast is raised to ₦143 billion (Previous: ₦131 billion).
We revise our target price to ₦30.73 (Previous: ₦28.00)
Whilst we see the recent uptick in NPL ratio (H1’17: 4.3% vs. Q1’16: 3.2%) as a pressure point for earnings in the coming quarters following the restructuring of Etisalat’s loan exposure and the subsequent takeover, we highlight ZENITHBANK’s impressive liquidity and capital ratios.
With capital adequacy and liquidity ratios of 21% and 61% (regulatory benchmark of 15% and 30%) respectively, we believe the bank is well positioned to take advantage of the market opportunities.
Given the earnings outperformance, we revise our target price to ₦30.73 (Previous: ₦28.00). Although we have seen a strong rally in the stock in recent time (ytd return: 63%), we believe the bank remains largely undervalued. ZENITHBANK trades at FY’17 P/B: 1.0x and P/E: 5.8x vs. Tier I banks’ average P/B: 1.1x and P/E: 5.8x respectively.
Source: Vetiva Research
By Aduragbemi Omiyale
Nigeria slightly surpassed its quota set by the Organisation of the Petroleum Exporting Countries (OPEC) in July 2026.
In the month under review, the country produced about 1.57 million barrels of crude oil per day.
It was the third consecutive month Africa’s largest oil-producing nation was meeting its monthly quota, set to stabilise the price of the commodity on the global market by the oil cartel.
Data released by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) on Wednesday showed that the 1.5 million barrels per day ceiling for Nigeria was surpassed last month.
The agency disclosed in a statement today that the country produced 1.505mbpd of crude oil and 0.17mbpd of condensate, bringing the combined daily production to 1.67mbpd.
In the month under review, the daily peak production of crude oil and condensate was 1.78mbpd, while the lowest daily production was 1.57mbpd.
Although Nigeria met its OPEC quota in the month of July, the statistics show that on a month-on-month basis, production fell by 4 per cent.
This was attributed to the decline in production due to operational challenges experienced at the Erha and Akpo fields, which impacted crude oil output during the period under review.
These disruptions constrained production volumes and contributed significantly to the overall reduction in national crude oil output.
Despite the challenges, production operations across most other producing assets remained relatively stable, with operators implementing measures aimed at maintaining production efficiency and minimising the impact of operational constraints, NUPRC stated.
By Aduragbemi Omiyale
The over 9 billion shares of Lasaco Assurance Plc issued to shareholders of the company via a rights issue have been listed on the Nigerian Exchange (NGX) Limited.
The equities were brought to Customs Street on Wednesday by the organisation, increasing its total issued and fully paid-up share capital.
Lasaco Assurance, which scaled the recapitalisation hurdle of the National Insurance Commission (NAICOM) in July 2026, raised fresh capital from the capital market to shore up its capital base.
The underwriting firm got about N18.5 billion from the rights issue, which involved the issuance of 9,236,321,546 ordinary shares at a unit price of N2.00.
The exercise was on the basis of five new ordinary shares for every existing six ordinary shares held as of the close of business on Friday, February 20, 2026.
Confirming the listing of the additional stocks of Lasaco Assurance today, the Head of Issuer Regulation Department of NGX RegCo, Mr Godstime Iwenekhai, announced in a circular that, “Trading licence holders are hereby notified that an additional 9,236,321,546 ordinary shares of 50 Kobo each of Lasaco Assurance Plc were today, Wednesday, August 12, 2026, listed on the daily official list of Nigerian Exchange Limited.
“The additional shares arose from the company’s rights issue of 9,236,321,546 ordinary shares of 50 Kobo each at N2.00 per share on the basis of five new ordinary shares for every existing six ordinary shares held as of the close of business on Friday, February 20, 2026.
“With the listing of the additional 9,236,321,546 ordinary shares, the total issued and fully paid-up share capital of Lasaco Assurance Plc has now increased from 11,083,585,855 to 20,319,907,401 ordinary shares of 50 Kobo each.”
By Adedapo Adesanya
The Nigerian Insurers Association (NIA) has said the successful recapitalisation of the insurance industry will strengthen the sector’s ability to support financial stability and economic growth.
NIA Chairman, Mrs Ebelechukwu Nwachukwu, said a well-capitalised insurance industry would be better positioned to meet its obligations promptly, underwrite complex and large-scale risks and serve as a dependable pillar of the Nigerian economy.
She made the remarks while commending the National Insurance Commission (NAICOM) for its structured implementation of the new minimum capital requirements under the Nigerian Insurance Industry Reform Act (NIIRA) 2025.
Mrs Nwachukwu said NAICOM’s clear guidelines, systematic verification process, defined timelines and rigorous supervision had provided operators with a credible framework for navigating the recapitalisation exercise.
She described the outcome as a major milestone for the industry and congratulated the 43 insurance and reinsurance companies that have successfully met the prescribed minimum capital requirements.
According to her, the exercise represents “a major win not just for regulators and operators, but for policyholders, investors and the wider Nigerian economy.”
Mrs Nwachukwu said the association would continue to work with NAICOM and other stakeholders to consolidate the gains of the exercise, with emphasis on sustainable industry growth, stronger market conduct and improved consumer confidence.
The official also expressed solidarity with the eight companies still undergoing final verification and regulatory review, urging them to remain confident as NAICOM completes the process within the 14-day review period.
The NIA chairman assured policyholders and the wider business community that the insurance industry would emerge from the recapitalisation exercise stronger, more resilient and better positioned to contribute to Nigeria’s economic development.
