By Amaechi Ogbonna
For financial institutions that understand its dynamics, playing in the retail banking turf can be quite exciting.
This is because retail transactions offers a service provider the opportunity of interface with different categories of customers at the grassroots to be able to appreciate the world of small customers as opposed to the wholesale banking model of several mid -generation lenders years ago.
For Zenith Bank which entered the financial services industry playing at top of the ladder providing corporate banking services that targeted the big corporations and high networth customers, moving into the retail banking space has become a game changer as the huge income opportunities of that segment has well boosted its income and opened the windows of growth for small economic actors. This has then complemented its revenue stream to the extent that even during a pandemic the bank continued to post profit and paying dividend to its esteemed stakeholders. Over the last few years, Zenith Bank has deepened its retail masterclass by penetrating a space that was exclusively that of the traditional lenders and thereby making the game more interesting and quite exciting space to the extent that even competitors are now looking forward to adopting its winning strategies.
The strategy bodes well with the bank’s vision of consolidating its retail business as it hopes to achieve success in the retail end of the market to enable maintain a healthy balance with its its corporate banking operations so as to consistently ahead of competition.
The benefits of this balancing act recently reflected in the bank’s audited results for the half-year (HI) ended 30 June 2021, whereby it recorded positive growth across key financial indices despite a challenging macroeconomic environment exacerbated by the COVID 19 pandemic.
In the said half-year financial results, the bank Group recorded a 3 percent growth in profit before tax from the N114 billion reported in H1 2020, to N117 billion in H1 2021. It also reported about 9 per cent growth in non-interest income which rose from N116 billion in June 2020, to N127 billion in June of 2021.
The figures in the audited statement also show a reduction in the organisation’s interest expense by 26 per cent and 9 percent growth in non-interest income resulting in improved profitability.
Economic experts who assessed the performance admitted that the Group’s retail journey continued to deliver positive results as deposits from that space grew by N38.2 billion from N1.72 trillion to N1.76 trillion year-to-date (YTD).
In the same vein, the lender’s savings balances grew marginally by two per cent YTD to close at N1.18 trillion, from N1.16 trillion as at December 2020.
The drive for increased retail deposits and a low-interest yield environment helped reduce the cost of funding from 2.2 per cent to 1.3 per cent in the current period. Furthermore, the results showed that operating expenses grew by 10 per cent year-on-year, but growth remained below the inflation rate, while the Group improved its Earnings per Share (EPS), which grew two per cent from N3.30 to N3.38 for the half-year ended June 2021.
Group’s total customer deposits also increased by eight per cent to close the period at N5.77 trillion, which is a good indication that it grew its market share.
In the same vein, Group total assets grew marginally to N8.52 trillion as at June 30, 2021, from the N8.48 trillion recorded as at December 31, 2020.
Despite the COVID-19 pandemic induced challenges and the challenging operating environment, the Group grew its risk assets as gross loans were up three per cent year-to-date, from N2.92 trillion to N2.99 trillion.
This was conservatively achieved at a low non-performing loans (NPLs) ratio of 4.51 per cent (FYE 2020: 4.29%) and a reduced cost of risk of 1.3 per cent (June 2020: 1.8%).
It prudential ratios such as liquidity and capital adequacy also remained above regulatory thresholds at 69.9 per cent and 22 per cent respectively.
Nevertheless, Zenith Bank expects to retain its dominance in the corporate banking segment – its key strength area – despite the current retail tilt. Its management’s goal is to consolidate on its retail successes while simultaneously strengthening the corporate arm.
Also, its trading revenue is expected to remain relevant for the foreseeable future.
A research and investment firm in a recent note observed that in order to accelerate its retail proposition, Zenith Bank recently launched its chatbot, the Zenith Intelligent Virtual Assistant (ZiVA), alongside other digital initiatives1
Furthermore, it noted that the bank has rapidly grown its agency network from 15,000 in first half 2020 to over 62,000 in first half 2021.
Management of the bank, believes that the accelerated agency growth, combined with the introduction of the Virtual Debit Card, drove the over three million increase in the number of cards issued between June 2020 and June 2021.
The bank has also set up a digital factory, signaling its shift from a strategy of technological assimilation to one of innovation
The report also stated that Zenith Bank’s retail loans have improved, accounting for five per cent of gross loans on average over the last three years, compared to an average one per cent contribution from its full year 2017 and full year 2018 results.
“Impressively, the retail loan book has expanded by a 4-year compound annual growth rate (CAGR) of 88 per cent, compared to a moderate 7.9 per cent for the public, corporate, and commercial and SME segments. The retail segment accounted for 46 per cent of total deposit growth between full year 2017 and first half 2021, growing at a CAGR of 26.5 per cent, compared to nine per cent for the other segments.
Consequently, retail is now the second largest contributor to deposits after Commercial & SMEs,” it noted.
Also, the Lagos-based financial and advisory stated in the report that the remarkable growth in the bank’s electronic transactions volume also appeared to be partly driven by its retail strategy.
In all theZenith Bank retail expansion drive has continued to impact all stakeholders added.
“We attribute the segment’s broad support to Group profit before tax margin to the sustained reduction in funding cost (linked to the increase in cheaper retail deposits) and growth in e-business income,” it added.
According to the report, despite the fact that the bank’s retail traction has been encouraging, its gross earnings sustainability over the mid-to-long term was likely to require more, given the dynamism of the operating environment.
It added: “Our comfort level for earnings diversification entails equal contributions from interest income and non-interest revenue (NIR) to gross earnings. Per our assessment, Zenith Bank’s NIR contribution to gross earnings has averaged about 35 per cent over the last four years.
Although GTCO also has acomparable NIR contribution, it plans to increase it to about 50 per cent 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 sustainable long-term ROE.
“It has also hinted that it is constantly scanning the operating environment for threats to its current business value proposition and growth opportunities.”
Zenith Bank’s recent foray into the retail space and the accompanying successes support analyst’s positive medium-to-long-term view on the bank’s earnings
It pointed out that at over N8 trillion, Zenith Bank’s funding base appears robust enough to drive long-term asset growth. “Management is also optimistic that it could always garner the level of funding needed to push its strategic goals. Notably, the bank has focused on accumulating relatively low-cost funding, as demonstrated by its 93 per cent low-cost composition of deposits as at first half 2021. This has translated to lower funding cost of 1.3 per cent, which management is confident can fall further.
The bank has recorded successes in its FX liquidity management as reflected in the strong growth in domiciliary deposits and its ability to do swaps. Management has also explained that it is not considering an immediate Eurobond issuance after the current one matures next year,” the report stated.
This position was underpinned by the bank’s cautious stance regarding funding long-term dollar assets. Instead, it believes swaps and domiciliary deposits can cover its short-term liquidity needs.
As at first half 2021, Zenith Bank had $1.7 billion in swaps, $3.9 billion in domiciliary deposits and a net long position of $1.1 billion.
The strategic objective of Zenith Bank also includes a continuous improvement of its capacity to meet customers’ increasing and dynamic financial needs as well as sustain high quality growth through investments that impact the quality of service to its existing and potential customers, constant upgrade of its ICT infrastructure, unwavering investment in training and re-training of its people and regular reinforcing of its customer services delivery charter with regards to continually changing customer needs.
Meanwhile, Zenith Bank continues to place high premium on its exceptional service delivery in the drive to consistently exceed stakeholders’ expectations. The Ebenezer Onyeagwu -led lender has developed a qualitative strategy to meet and surpass customer expectations, and has finetuned service delivery model to address the changing taste and sophistication of the customer.
This has further been bolstered by the deployment of alternative channels and platforms designed to reach all categories of customers even in far flunged locations across the country
As a bank, Zenith Bank has an underlying philosophy to remain on top of competition, a customer-centric institution with a clear understanding of its market and environment.
One cardinal philosophy the bank has held in high esteem is the commitment to promoting good corporate governance values and best practices in the conduct of the financial services industry, and today stands as one of the organisations that has not been burged down with boardroom wranglings associated with most banks. This is because it believes that good corporate governance engenders public trust and ultimately ensures that the company meets the expectation of all stakeholders.
Zenith Bank’s business continuity policy is to maintain the continuity of its activities, facilities, systems and processes and where these are disrupted by any event, to enable it to return to ‘normal’ operations as soon as possible.
In the area of Information Security Policy the bank remains a leader, which part of the reasons its customer base has continued to growl.is to provide a security framework that will ensure the protection of information from unauthorised access, loss or damage while supporting the open, information-sharing needs of the bank.
Zenith Bank has clearly distinguished itself in the banking industry through superior service quality, unique customer experience, and sound financial indices.