The tough economic environment has taken a toll on Zenith Bank earnings for the first six months of 2016. The bank released its results for the period ended June 2016 showing gross earnings are down 6.2% to N214.5 compared to N229.01 billion recorded in the comparable period ended June 2015.
The results show that while Zenith Bank was able to marginally grow interest and similar income, there was a 16% decline in fees and commission income within the period to N31 billion in the six months ending June 2016.
This is not surprising considering that banks have had to give up the lucrative Commission on Turnover (COT) while the Central Bank of Nigeria’s (CBN) recent restrictions on 41 items from accessing the foreign exchange market impacted negatively on the trade activities of many banks in the country, thereby reducing income from fees.
Another possible explanation for the decline in fees and commission income is the implementation of the Treasury Single Account (TSA) by the Federal Government last year.
But Zenith bank’s personal expenses remained relatively flat within the period, which indicates that the bank did not join the band wagon of financial institutions cutting down on staff cost. This could mean that the bank is sure that the current challenges in the economy are temporary.
However, while staff cost remained largely flat, there was a noticeable 6.81% decline in operating costs, which shows that the bank is cutting down excess fat in its operations in the face of declining earnings. The 6.81% decline in operating expenses added N3.15 billion to the bank’s bottom line, helping cushion drop in the bank’s profit. Zenith Bank’s profit after tax declined by 15.7% to N44.8 billion for the six months ended June 2016.
A point of concern for shareholders will be the sharp 98% increase in impairment costs to N14.2 billion as at June 2016. This reflects the deterioration in the general Nigerian economic environment, which has seen many banks increase impairment provisions to guide against the increasing risk of bad loans in the banking industry.
Zenith has its biggest loan exposure to Oil and Gas as well as the manufacturing sectors of the Nigerian economy. However, the bank is also known to play in the high end low risk end of both sectors thus reducing its risk exposure to both sectors.
The bank’s board has proposed an interim dividend of 25 kobo which will make shareholders happy, considering the tough economic environment. But the bank’s share price closed lower at N15.60 on 11 August down 2.5% on the day’s trading. The share price has gained 11% since the beginning of the year.