How lower tax provision lifts Zenith Bank performance in H1 2020

Zenith Bank was able to weather the storm brought about by the coronavirus pandemic to emerge one of the lenders that made highest profit in the first half of 2020. However, the significant cut in its income tax played a role in the feat the bank achieved during this period.

Zenith Bank cut its total tax expenses by almost 55% to N10.3 billion in the first six months of the year from N22.8 billion it expended for the same purpose in the first quarter of 2019. This cut was made majorly in the bank’s current income tax which dipped 56.64% in H1 2020 and it did not pay any dividend tax during this period, compared to N15.18 billion it coughed out for it in H1 2019.

Its audited half-year result showed it grew gross revenue by 4.4 per cent to N346.1 billion during this period, driven by 1 per cent rise in interest income and non-interest income which was up 6 per cent. The marginal growth in interest income is traceable to revenue from loans and advances to customers which ticked up 11.58 per cent to N128.37 billion and placement with banks and discount houses which increased 41.34 per cent to N16.65 billion, but this was counteracted by earnings from treasury bills dipped -46.49 per cent to N28.38 billion in H1 2020.

Mr Moses Ojo, Chief Economist/Head, Investment Research at PanAfrican Capital Holdings, explained that Zenith Bank may have made the tax cut because it discovered it over provided for it in the preceding year. He added that the lower tax provision had a positive impact of the bank’s post-tax tax from where it pays dividend.

Zenith Bank pretax profit expanded 2 per cent to N114.12 and post-tax profit went up 17 per cent to N103.82 billion, lifted by the significant drop in income tax expense, which was more than halved from N10.30 billion in H1 2019 to N20.94 billion in the first six months this year.

This was despite impairment charges on bad loans rising 74.2 per cent to N23.9 billion, propelled by 478.95 per cent increase in provision for losses in investment securities, as the bank non-performing loan was only 0.3 per cent less than the regulatory 5 per cent set the Central Bank of Nigeria (CBN), 10 per cent higher to 4.30 per cent of its total which was bad in the same period last year.

The bank improved total loans by 14 per cent to N2.80 trillion, while customer deposits grew by 15 per cent to N4.9 trillion, with total liabilities growing at a faster pace of 21.9 per cent to N6.59 trillion than total assets which went up by 19 per cent to N7.58 trillion; Shareholders’ fund also strengthened 5 per cent to N988.98 billion between December 2019 and June this year.

Zenith Bank is very liquid with a liquidity ratio standing at 50.8 per cent compared to 57.3 per cent as of December 2019, the threshold set by the CBN is 30 per cent; the bank’s loan to deposit ratio was slightly above the 65 per cent regulatory benchmark at 66.1 per cent, while capital adequacy ratio (CAR) was 20 per cent, a marginal dip from 22 per cent it had in December last year.

The bank’s shareholders will be getting N0.30 interim dividend for the first half of the year.

“Going into the second half of the year, we will continue to consolidate our leadership in the industry and deliver value to stakeholders. We expect to see an improvement in economic activities alongside the recovery in the global economy as we search for a cure or vaccine to tackle the coronavirus disease,” Zenith Bank stated in a release it issued on its H1 2020 performance.

By Dayo Kiladejo