Zenith Bank Experiences Increased Cost Of Funds For Half-Year 2022, On Elevated Yield Environment

metro

2 years ago

Elevated yield environment typified by higher paying interest bonds and shares with higher dividends may be responsible for Zenith Bank’s marginal increment in the cost of funds by 1.4 percent for half year ended June. 2022.

However, the increase in the cost of funds was lower than the increase in yields on interest-generating assets, giving rise to an improved Net Interest Margin (NIM) of 7.1 per cent, from 6.4 per cent in June 2021

cost of funds is the interest rate that financial institutions pay on the funds they use in their business.

Consequently, it refers to how much banks and financial institutions spend in order to acquire money to lend to their customers.

It can also mean the interest rate banks must pay when they borrow from the Central Bank, (CBN) other banks or corporate organizations for their operations.

The spread between the cost of funds and the interest rate charged to borrowers represents one of the main sources of profit for many financial institutions.

Lower cost of funds commonly generates better returns for banks, particularly, when they are used for short-term.

CBN has had to increase the Monetary Policy Rate, (MPR), anchor rate for banks’ lending to customers, twice, this year, in May and July by 150 and 100 basis points respectively to the current rate at 14 percent in a renewed determination to tackle rising inflation.

The implication is that banks would have to source for funds at higher cost as investors would naturally go for high yielding instruments.

The situation is compounded for banks with ceiling on the amount to be invested in treasury bills, which has been a veritable source of funding, and, apparently, at the expense of financial Intermediation roles expected of banks.

However, Zenith Bank’s total assets rose to N10.12 trillion at the end of June 2022, from N9.45 trillion at the end of December 2021.

Despite the headwinds imposed by the operating environment, the Group grew its risk assets as gross loans grew by five per cent YtD, from N3.5 trillion to N3.7 trillion.

This was achieved at a moderate non-performing loan (NPL) ratio of 4.4 per cent (FYE 2021: 4.2%) and cost of risk of 1.4 per cent (June 2021: 1.3%).

Its prudential ratios such as liquidity and capital adequacy also remained stable and well-above regulatory thresholds at 60.5 per cent and 21 per cent respectively.

The bank promises to continue to provide superior financial returns, anchoring on its audited results for the half-year ended 30 June 2022, with double-digit growth of 17 per cent in gross earnings, from N346 billion reported in H1 2021 to N405 billion in H1 2022.

The bank’s audited half-year financial results presented to the Nigerian Exchange (NGX) yesterday, also revealed that the growth was underpinned by a 19 per cent year-on-year (YoY) growth in interest income from N204 billion to N242 billion and an 18 per cent YoY growth in non-interest income from N127 billion to N149 billion.

The growth in interest income was driven by the modest increase in the loan book and improved interest margins.

The increase in non-interest income attested to the Group’s success in its income diversification strategy.

Also, Zenith Bank’s profit before tax (PBT) grew by 11 per cent YoY, from N117 billion to N130 billion. Earnings per share (EPS) also grew from N3.38 to N3.55 over same six-month period.

The Group also recorded an 11 per cent year-to-date (YtD) increase in total customer deposits to close the period at N7.15 trillion.

The retail strategy of the Group continued to deliver outstanding results as retail deposits grew by 17 per cent YtD, from N1.82 trillion to N2.13 trillion.

Retail activities also supported the growth recorded in fees on electronic products which grew by 45 per cent YoY, from N17 billion to N25 billion.

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The Group disclosed that it remains focused on advancing its digital banking strategy anchored on a strong technology base, and intends to consolidate on the gains achieved in prior years across all business segments.

“Combined with the Group’s industry leadership, we expect this to drive improved performance and deliver enhanced returns to stakeholders,” the bank stated.