Zenith Bank closed the 2013 operations with a lower net profit figure than it earned in 2012. Revenue failed to grow as rapidly as it did in the preceding year while costs grew generally ahead of income. The bank, which doubled its profit from major cost savings in the prior year, lost profit margin in 2013.
A big leap in tax liability and accelerated growth in operating expenses undermined profit performance in 2013. A considerable slow down in interest expenses however played a moderating role that prevented a more rapid drop in profit.
The bank posted a gross income of N351.47 billion in 2013, which is an increase of 14% over the full year figure in 2012. It is however a slow down in the growth rate from the 26% record it achieved in the preceding year. Actual revenue figure of the bank is just 2.0% higher than our revenue projection of N344.4 billion for the year.
As in the preceding year, interest income was the revenue growth driver in 2013 with an increase of 18% to over N260 billion. Its contribution to gross earnings continued to grow from 66.9% in 2011 to 72.1% in 2012 and further to 74% in 2013.
Operating cost reversed its benign behaviour in the preceding year and claimed an increased share of gross earnings in 2013. Against a marginal increase of 3.0% in 2012, it rose ahead of revenue at 23% in 2013 to N147.20 billion, the highest margin of increase in the past three years. That reversed the bank’s declining operating cost margin from 47.6% in 2011, 38.9% in 2012 to 41.9% in 2013.
The accelerated growth in operating cost was significantly countered by a major slow down in interest expenses during the year. Interest cost equally reversed its adverse movement in 2012 and showed a favourable behaviour in 2013. It was the only major cost item of the bank that failed to moderate in the preceding year while in 2013 it was the only major cost line that moderated.
Compared to a rise of 85% in 2012, interest expenses increased by 10% in 2013 to N70.80 billion and claimed a slightly reduced share of revenue at 20.1% compared to 21% in 2012. Unlike in the preceding year, interest cost also rose well below interest income, which improved net interest margin and permitted an increase of 21% in net interest income.
Provisioning for risk asset losses also encroached on revenue in the year with an increase of 22% to N11.07 billion. This is against a sharp drop by 45% in the preceding year. The drop in loan loss provisioning was the strength of the bank’s exceptional profit growth in 2012. A moderate improvement of 4.0% in fee income and a drop of 27% in investment and other operating income also affected the growth of the bottom line.
Despite the increase in costs and some revenue disappointments, the bank was able to achieve an increase of 8% in pre-tax profit to N110.60 billion in 2013. The difference between the 8.0% increase in pre-tax profit and a decline in net profit is an expansion of 977% in tax liability at N15.28 billion in 2013.
The bank closed the year with a net profit of N94.58 billion, which is virtually at par with our projected figure of N93.60 billion. It is a decline of 6.0% from the preceding year’s net profit figure of N100.15 billion. Net profit had risen by 107% in the preceding year.
The decline in profit reflects a decline in profit margin in the year, as the overall cost behavior weakened profit capacity of the bank. Net profit margin went down from the all time peak of 32.5% in 2012 to 26.9% in 2013. A decline in profit margin was a general trend in the banking industry last year. Yet, Zenith Bank is expected to achieve one of the highest profit margins in the banking sector in 2013.
The bank achieved a significant decline in the average cost of funds following the moderated growth in interest expenses. Deposit liabilities grew by 18% in the year compared to the 10% increase in interest expenses, stepping up from the increase of 17% in 2012.
The average cost of the naira of outstanding deposits declined slightly during the year at 3.1%. It rose from 2.1% in 2011 to 3.3% in 2012.The bank closed the financial year with a deposit base of about N2.28 trillion.
Net assets per share continued to grow from N12.56 in 2011 to N14.74 in 2012 and further to N16.09 in 2013. Earnings per share declined from N3.19 in 2012 to N3.01 in 2013. The bank has declared a dividend of N1.75 kobo per share, improving from N1.60 per share in the preceding year. This is a pay-out ratio of 58% compared to 50.1% in 2012. The dividend yield is 8.2%. The bank’s register will close between 24th and 28th March while payment will be made on for 4th April 2014.