So how did Zenith Bank manage to grow the bottom line despite some headwinds experienced in the top line? The answer is simple and is centered on two broad themes: operational efficiencies across the three levers of cost and a surge in retail banking transactions across the electronic channels.
The Group’s cost of funds has been trending down in the last 5 quarters from June 2017 when it was very high at 6.4% (due to the high yields environment prevailing then) and has gradually worked its way down to 5.2% in December 2017; 4.1% as at March 2018 and has now closed at 3.4%. The group shed about N100bn in time deposits while gaining N40bn in savings YTD. The effect of this was most felt in the 39% reduction in interest expense YoY from N123bn in June 2017 to N75bn in June 2018.
The Group closed the half year ended June 30, 2018 with an adjusted NIM of 10.1% growing by 1500bps year on year from June 2017 reflecting significant improvement in the Group’s operational efficiency.
The Group’s risk metrics has also improved significantly as the cost of risk reduced by 75% from 3.6% in H1 2017 to 0.9% in H1 2018 with impairment charge reducing by 77% from N42bn to N10bn over the same period which signifies the Group’s disposition to credit risk management.
The third lever of operational efficiency which the Group has also improved upon is the cost to income ratio which showed an improvement in the last 12 months decreasing from 56.7% in H1 2017 to 54.9% in H1 2018 which reflects the efforts the Group has made to be more efficient despite inflation still at double digits. The Group noted in its investors’ conference call that the AMCON levy has been fully accounted for in the half year which implies that there is room for improved operational efficiency in the second half of the year.
Zenith Bank: A Leader In The Corporate Segment Of The Market?
Zenith Bank is undoubtedly the leader in the corporate segment of the market and has been so for many years. This has been a source of criticism in the public on their focus on corporate and the public sector to the detriment of individuals and the retail space. But is Zenith Bank only about Corporate Banking? The numbers in the H1 2018 results seem to tell a different story as the level of savings deposit increased by N40bn from December 2017 which is quite significant in just six months.
Similarly fees on electronic products which are fees charged on the Bank’s electronic channels has surged up by 87% when compared to June 2017. This grew from N5.39bn to N10.08bn in June 2018 which is another testament to the Bank’s willingness to service retail customers consolidating on its vast investments in digital technology. Zenith Bank has always been known for its innovation in technology and the retail segment is also enjoying such innovation.
Between H1 2017 and H1 2018, the volume of transactions on various electronic platforms grew by over 100%.
Now is anybody still saying that Zenith Bank is purely a corporate bank? Surely not. Rather it would appear that the Bank is gradually deploying the same suave dexterity which has made it a leader in the corporate segment into the retail segment to acquire its own market share.
The public is undoubtedly thrilled with these developments. However I am certain that the public will also continue to observe developments in the Bank and the industry as a whole before making their conclusions. One aspect that will come to mind, is the matter of consumer lending. Zenith Bank’s retail loan portfolio is insignificant when compared to that of its peers in other countries in Africa such as Kenya and South Africa. For Zenith Bank as the largest bank in Nigeria by assets size it will be expected that they play a role in developing small businesses and growing consumer lending as done by their peers in other countries.
It is hopeful that the Bank would apply its leadership and innovation in technology to capture the retail loans segment by employing automated processes, judicious use of data from credit bureau and other sources for rich data analytics in making quick and efficient credit decisions in seconds. This would ensure that the Bank’s loan book is further diversified and its credit risk is also spread across a wider portfolio of customers. This trend has been seen in other climes and territories where retail lending revenue is becoming a significant contributor to both the top line and bottom line of banks. According to CRC Credit Limited, Africa’s retail banking revenue has been estimated to grow to $53 billion by 2022. This figure represents 41% of the total banking revenues in the Africa region in the next four years with Nigeria and South Africa being among the growth drivers.