How Zenith Bank Sheltered Cash Flow Against Pandemic Impact

The International Monetary Fund (IMF)’s Global Financial Stability Report (GFSR) revealed last year that Nigerian banks showed resilience due to unprecedented policy support, which helped maintain the flow of credit to households and firms.

In its latest Article IV (February 7, 2022) the IMF Directors welcomed the resilience of the banking sector and the planned expiration of pandemic-related support measures.

Apart from some of the measures taken by the banking sector regulator, the Central Bank of Nigeria (CBN), banks on their own adopted some measures to protect their assets, and cash flows among others.

Ebenezer Onyeagwu led (managing director/CEO) Zenith Bank Group considered the impact of Covid-19 on its business operations and put in place appropriate safeguards to minimize the negative impact.

The Group continues to make adjustments to the way and manner in which it renders banking and other financial services to its customers in order to cope with the challenges posed by the Covid-19 pandemic.

Critical areas of the bank’s business and operation which are closely monitored via-a-vis the threat of posed Covid-19 are; protection of the bank’s cash flow, protection of the bank’s human resources and, enhancement of the digital and electronic platforms of the bank to facilitate fast and seamless banking services to its customers.

Protection of the Group’s Cash flow

In order to protect the cash flow of the Group and prevent a drop in the Group’s earnings, profit and asset quality, the Group adopted the following strategies: provision of critical support to the bank’s loan customers to help them navigate through the challenges posed by the pandemic, engaging of the bank’s customers in key sectors of the economy to better understand their current challenges and provide effective and bespoke actions to alleviate their hardships while preserving shareholders’ funds, and continuous adoption of a complete and integrated approach to risk management that is driven from the Board level to the operational activities of the bank.

Continuously review of the bank’s loan book in order to closely monitor all assets and liabilities classes and ensure that the bank has sufficient liquidity to meet its financial obligations, developing and testing several stress scenarios to assess the possible impacts of Covid-19 on the bank’s liquidity, capital adequacy and earning capacity, and update to the bank’s Expected Credit Loss (ECL) model in order to appropriately captures forward looking macroeconomic indices which incorporates effects of covid-19.

The efficiency of the bank’s strategies reflected in its financial performance as Zenith Bank Group achieved year-on-year (YoY) growth in gross earnings of 10 percent from N696.5 billion reported in the previous year to N765.6 billion.

This was on the back of 23 percent Year-on-Year growth in non-interest income from N251.7 billion to N309 billion and a 2 percent YoY growth in interest income from N420.8 billion to N427.6 billion.

Profit before tax also grew by 10 percent from N255.9 billion to N280.4 billion in the current year. The increase was due to growth in the top-line and very strong management of our treasury portfolio that increased efficiency, resulting in a drop in interest expense by 12 percent from N121.1 billion in 2020 to N106.8 billion in the current year. This further led to a 7 percent increase in net interest income of N320.8 billion in 2021 from N299.7 billion in 2020.

Customer deposits increased by 21 percent, growing from N5.34 trillion in the previous year to N6.47 trillion in the current year. The growth in customer deposits came from both our corporate and retail customers, with retail deposits continuing to grow, up by N146 billion from N1.72 trillion in 2020 to NGN1.87 trillion in 2021.

The Group’s continuous drive for retail deposits combined with the strategic rebalancing of its funding base helped to reduce cost of funding from 2.1 percent to 1.5 percent in the current year. However, net interest margin declined from 7.9 percent to 6.7 percent in the current year due to lower yields on held-to-maturity (HTM) investment securities.

Operating expenses grew by 13 percent YoY but growth remains below the inflation rate. The Group improved its Earnings per Share (EPS) which grew by 6 percent from N7.34 to N7.78, however, returns on equity and assets reduced from 22.4 percent to 20.4 percent and from 3.1 percent to 2.7 percent respectively due to the significant growth in the balance sheet.

Total assets increased by 11 percent, growing from N8.48 trillion in 2020 to N9.45 trillion in 2021, mainly driven by growth in customers’ deposits. With the steady recovery in economic activities, the Group prudently grew its gross loans by 20 percent, from N2.9 trillion in 2020 to N3.5 trillion in 2021 with a moderated NPL ratio from 4.29 percent to 4.19 percent YoY.

The capital adequacy ratio reduced from 23 percent to 21 percent while liquidity grew from 66.2 percent to 71.6 percent. Both prudential ratios are still well above regulatory thresholds.

In 2022, the Group intends to consolidate on the gains achieved in the previous year in all business segments and combine leadership in the industry, innovation and technology to drive improved performance and deliver enhanced returns to all stakeholders.

Protection of the Group’s Human Resources

The Group also put in place measures to protect its employees, customers and other stakeholders of the bank. Some of the measures were, setting a clear direction and communicating it effectively to all staff and other stakeholders in accordance with the bank’s Business Continuity Plan (BCP).

The Group continues to encourage remote working and electronic self-services for its traditional banking services, constant review and strengthening of the Group’s Business Continuity Plan (BCP) to reflect the current and potential impacts of Covid-19 pandemic.

The Group also continues to encourage flexible working conditions among its employees. Consequently, the Group has made significant investment in Information Technology (IT) infrastructure that facilitates remote working conditions. To complement this, the bank increased its investment in IT and Cyber Security infrastructure to enable it meet the increasing digital needs of its customers while protecting its organization and customers from all cyber security threats.

Onyeagwu led Zenith Bank Plc last year emerged as the Best Bank in Nigeria in the Global Finance Magazine’s Best Banks Awards 2021, retaining the award for the second successive year.

The bank was among other banks from 35 countries in Africa recognised as the prestigious U.S. magazine, Global Finance announced its 28th Annual Best Bank Awards Winners in Africa.

“This award is a strong indication of our resilience despite a very excruciating macroeconomic environment exacerbated by the COVID 19 pandemic”, Onyeagwu said.

He said the award was made possible by the joint contributions of the bank’s key stakeholders – the Group Chairman, Jim Ovia, for his pioneering and foundational role in building the structures and laying the foundation for an enduring and very successful institution, the Board for the deep insights and outstanding leadership they provide, the staff for their commitment, doggedness, creativity and very outstanding talents as well as the Bank’s teeming customers for their continued support and loyalty.

Zenith Bank has remained a clear leader in the Nigerian financial services industry, distinguishing itself through unique customer experience and sound financial indices. The bank is also the pioneer in the digital space with several firsts in deploying innovative products and solutions that ensure convenience, speed and safety of transactions.