Zenith Bank Posts Negative Net Profit Amid Concern Over Banks’ Resilience

ZENITH Bank Plc posted a -8.44 per cent negative net profit in 2022, coming at a time when analysts are turning the spotlight on banks’ resilience following the collapse of the Silicon Valley Bank in the United States.

In Zenith Bank’s audited annual financial statement for the year December 31, 2022 released on Tuesday, March 28, its profit after tax (PAT) declined by N20.65 billion, from N244.56 billion in 2021 to N223.91 billion in 2022.

A PAT is the amount that remains after a company has paid off all of its operating and non-operating expenses, other liabilities and taxes.

The company’s income tax expenses (CIT) rose by 41.03 per cent to N60.74 billion in 2022, compared to N35.82 billion in 2021 to weigh on the bank’s profit before tax (PBT), which increased minimally by 1.53 per cent to N284.65 billion in 2022, from N280.37 billion in 2021.

CIT is a tax imposed on a company’s profit from all sources, and the rate is 30 per cent of total profit of a company.

Delay in filing financial result

Many of the commercial banks are yet to file their 2022 year-end results in compliance with the Securities and Exchange Commission (SEC) regulation, which requires listed companies to submit their audited financial reports for the previous year within 60 days of the year-end, which falls on or before March 1.

Coupled with the financial crisis, analysts are of the view that the financial sector is under a spotlight, attributing the delay in banks’ financial statements to higher regulatory scrutiny.

Investors are not only interested in banks’ profitability but also in their investment portfolios. In fact, they are showing keen interest in the liquidity of banks following the financial crisis that faced SVB and Credit Suisse, which have attracted significant attention to the financial sector both locally and globally.

The chief executive officer (CEO) of Highcap Securities Limited, David Adonri, told The ICIR that the delay by major banks in releasing their full year results might be from delay by the Central Bank of Nigeria (CBN) to approve their results.

“Perhaps, the results are also not impressive,” Adonri said.

High operating cost, political uncertainty, others buffeting profits

An investment and portfolio analyst, Abel Ezekiel, told The ICIR that the surprised negative performance posted by Zenith Bank should not be far-fetched from the company’s operating expense.

Ezekiel pointed to the huge cost and inflationary environment many organisations had faced since last year, as well as energy, personnel or administration, and digital costs, among others.

“These overheads have risen to the highest level, as shown by the National Bureau of Statistics report indicating that our inflation is currently at almost 22 per cent, the highest in over 17 years. So what do you have? It is the passing of these costs into gross profit before interest and tax with a negative impact on gross earnings.”

Closely related to the surge in operating cost is high interest payment on banks that have loans in their balance sheet. The current high interest situation may not be favourable to them, especially as lenders may resort to recalling such loans in order to re-price their loan portfolio, Ezekiel explained.

According to him, there are a lot of huge costs that many of these banks are carrying, noting that the springing up of new banks and online banking platforms like fintechs are making the bank space to be highly competitive.

“A lot of loans apps are giving people uncollateralised facility without much hassles taking over available opportunity, and the effect is reducing the juicy slice which conventional banks have enjoyed over the years. Definitely, this will affect their earnings,” Ezekiel said.

He also believed the election cycle may have caused most financial institutions to be cautious in taking investment decisions so as not to be found in a terrible situation over the uncertainty and outcome of the elections.

“There are also government policy somersaults on currency redesign, which was not properly managed since September last year. What we have is the striking of an aggregated domestic economy and business environment, destruction of working hours, and burning down of others by angry citizens who vented their anger on those hapless banks.

“In fact most of their first quarter 2023 figures may, if care is not taken, be disappointing,” Ezekiel added.

More decline in profit may occur in the first quarter of this year due to the damage wreaked on the banking industry and economy by the CBN’s ill-fated currency redesign policy, Adonri argued.

Hailing Zenith Bank for being able to pay out N3.20 combined dividends for the year, he said, “The bank’s effort is commendable for realising that level of profit and paying a good dividend despite last year’s hostile operating environment.”