Zenith Bank: Consolidation in the retail market

Mr. Ebenezer Onyeagwu

Zenith Bank’s foray into retail banking gets aggressive, writes Obinna Chima

In recent years, Zenith Bank has deepened its penetration into the retail space. This is in line with the bank’s current strategy, which emphasizes the consolidation of its retail activities. Ultimately, the lender hopes to be successful in the retail segment of the market, similar to that of its corporate arm.

This reflects the bank’s recently released audited results for the semester (HI) ended June 30, 2021, during which it recorded positive growth in key financial indicators despite a challenging macroeconomic environment exacerbated by the COVID 19 pandemic. In its half-year financial results, the Group recorded a growth in profit before tax of three percent, from 114 billion naira in the first half of 2020 to 117 billion naira in the first half of 2021. The group also recorded growth of nine per cent. cent of interest income from 116 billion naira in June 2020 to 127 billion naira in June 2021.

Overall, the significant reduction in interest expense of 26% and growth in non-interest income of 9% resulted in improved profitability.

The group’s journey in retail has continued to deliver positive results, with retail deposits increasing by N38.2 billion, from N172 thousand to N1766 billion since the start of the year. year (YTD).

In addition, the financial institution’s savings balances edged up 2% year-to-date to close at 1.18 trillion naira, from 1.16 trillion na in December 2020.

The campaign for increased retail deposits and a low interest rate environment have helped reduce the cost of financing from 2.2% to 1.3% during the current period. In addition, the results showed that operating expenses increased by 10% year-on-year, but growth remained below the rate of inflation, while the Group improved its earnings per share (EPS), which increased by 2%, from 3.30 N to 3 N. 38 for the six-month period ended June 2021.

The group also increased total customer deposits by 8% to end the period at 5.77 trillion naira, demonstrating growth in its market share, just as total assets edged up to 8.52 trillion. naira as of June 30, 2021, compared to N8. 48 trillion recorded as of December 31, 2020.

Despite the challenges brought about by the COVID-19 pandemic and the difficult operating environment, the Group has increased its assets at risk, with gross loans increasing by 3% since the start of the year, from 2.92 trillion naira to 2.99 trillion naira.

This was done conservatively with a low non-performing loan (NPL) ratio of 4.51% (EF 2020: 4.29%) and a reduced cost of risk of 1.3% (June 2020: 1.8 %).

Its prudential ratios such as liquidity and capital adequacy also remained above regulatory thresholds at 69.9% and 22% respectively.

Nonetheless, Zenith Bank expects to retain its dominance in the corporate banking segment – its main area of ​​strength – despite the current tilt in retail customers. The objective of its management is to consolidate its commercial successes while simultaneously strengthening the corporate arm.

In addition, its trading revenues are expected to remain relevant for the foreseeable future.

Zenith Bank may be lagging behind the retail market, according to analysts at Cardinal Partners Limited, but its recent progress and ongoing initiatives suggest it is strengthening its grip in the banking field.

The research and investment firm noted in a report that in order to accelerate its retail proposition, Zenith Bank recently launched its chatbot, the Zenith Intelligent Virtual Assistant (ZiVA), alongside other digital initiatives1

In addition, he noted that the bank has rapidly grown its branch network from 15,000 in the first half of 2020 to more than 62,000 in the first half of 2021.

According to the bank’s management, the accelerated growth of branches, combined with the introduction of the virtual debit card, led to the increase of more than three million in the number of cards issued between June 2020 and June 2021.

The bank has also set up a digital factory, marking its shift from a technological assimilation strategy to an innovation strategy.

The report also indicates that Zenith Bank’s personal lending has improved, accounting for five percent of gross lending on average over the past three years, compared to an average contribution of one percent of its results for 2017 and the year 2018.

“Impressively, the personal loan portfolio grew at a 4-year compound annual growth rate (CAGR) of 88%, compared to a moderate rate of 7.9% for the public, corporate, business and consumer segments. of SMEs. The retail segment accounted for 46% of total deposit growth between 2017 and the first half of 2021, with a CAGR of 26.5%, compared to 9% for the other segments.

“As a result, retail is now the second largest contributor to deposits after businesses and SMEs,” he noted.

In addition, the Lagos-based financial and advisory firm said in the report that the bank’s remarkable growth in electronic transaction volume also appeared to be partly due to its retail strategy.

Overall, the expansion of retail has largely benefited profits, he added.

“We attribute the segment’s broad support for the Group’s pre-tax profit to the sustained reduction in the cost of financing (linked to the increase in cheaper retail deposits) and the growth in e-commerce revenue,” he said. he adds.

Beyond retail

According to the report, despite the fact that the commercial traction of the bank has been encouraging, the sustainability of its gross profits in the medium and long term should require more, given the dynamism of the operating environment.

He added, “Our comfort level for income diversification involves equal contributions of interest income and non-interest income (NIR) to gross income. According to our assessment, Zenith Bank’s NIR contribution to gross income has averaged around 35 percent over the past four years.

“Although GTCO also has a comparable NIR contribution, it plans to increase it to around 50 percent over the next two years, aided by its transition to a holding company (HoldCo). Positively, Zenith Bank agrees that it will need more than just a retail strategy to support long-term sustainable ROE.

“He also suggested that he is constantly scanning the operating environment for threats to his current business value proposition and growth opportunities.”

Cardinal Partners argued that the lender’s recent foray into retail and the successes that accompany it support its positive mid- to long-term view of the bank’s profits.

He pointed out that at over 8 trillion naira, Zenith Bank’s funding base appears strong enough to drive long-term asset growth. “Management is also optimistic and believes it will always be able to secure the level of funding necessary to achieve its strategic objectives. Notably, the bank has focused on accumulating relatively low-cost funding, as evidenced by its low-cost deposit mix of 93% in the first half of 2021. This has translated into lower funding costs from 1.3%, which the management is convinced can fall further.

“The bank has had success in managing foreign currency liquidity, as evidenced by the strong growth in home deposits and its ability to swap. Management also explained that it does not envision an immediate Eurobond issue after the current bond matures next year, ”the report said.

This position was supported by the bank’s cautious stance on the financing of long-term assets in dollars. Instead, he believes home swaps and deposits can cover his short-term liquidity needs. In the first half of 2021, Zenith Bank held $ 1.7 billion in swaps, $ 3.9 billion in door-to-door deposits and a net long position of $ 1.1 billion.

Zenith Bank’s strategic objective also includes continuous improvement of its ability to meet the growing and dynamic financial needs of its clients as well as to support high-quality growth through investments that have an impact on the quality of service to its existing and potential customers, a constant upgrade of its ICT infrastructures, a constant investment in the training and retraining of its employees and the regular reinforcement of its customer service provision charter with regard to the constantly evolving needs of its customers.

In addition, Zenith Bank places great importance on the central role of exceptional service delivery in its drive to consistently exceed stakeholder expectations. The bank has a well-articulated strategy in place to not only meet and exceed customer expectations, but also ensure that plans are refined to meet changing tastes and customer sophistication.

Its underlying philosophy is to remain at all times a client-centric institution with a clear understanding of its market and its environment.

In addition, the bank remains committed to promoting good corporate governance and best practices in the conduct of its business. Indeed, he believes that good corporate governance breeds public trust and ultimately ensures that the company meets the expectations of all stakeholders.

Zenith Bank’s business continuity policy is to maintain the continuity of its activities, facilities, systems and processes and, when these are disrupted by an event, to enable it to resume “normal” activities as soon as possible.

Its information security policy aims to provide a security framework that will ensure the protection of information against unauthorized access, loss or damage while meeting the open information sharing needs of the bank.

Zenith Bank has clearly distinguished itself in the banking sector with superior quality of service, a unique customer experience and solid financial indices.


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