After Nigeria’s banking consolidation drive pioneered by the central bank in 2005, national giants were born wielding large market power, stable earnings and sound management. Amid this competitive landscape, Zenith Bank has emerged over the past year as Nigeria’s second biggest financial institution by assets, with growth powered by strong deposit growth rates, a robust capital base and sound risk management.
Last November Standard & Poor’s recognized this, rewarding Zenith with a BB- upgrade – equal to the sovereign ceiling – and citing its strong capitalization and balance sheet strength. “It is clear from our dealings with the banks that Zenith along with Guaranty Trust Bank are viewed as the highest quality banking operations in Nigeria, and this is reflected in their better credit ratings,” says Andrew Cuffe, banking sector analyst for JP Morgan in Johannesburg.
Zenith has the cleanest balance sheet in Nigeria, with the lowest number of non-performing loans in its portfolio, at 1.4% this year against a peer average of 5.3%.
Annual profit after tax has jumped 119% to N41.04 billion ($384 million) between 2007 and 2008, bolstered by the country’s oil-fuelled growth. Analysts cite sound, stable management as a unique factor in its profitability and successful courtship of investors and clients. “The success of the management team may in some respects be measured by the high esteem in which Zenith is held by its peers,” says Cuffe.
To help fund its expansion plans, Zenith raised N130 billion in its capital-raising drive early this year, prompting some analysts to argue the bank’s return on equity will lag behind its peers.
However, Jim Ovia, Zenith’s managing director and chief executive, says that spending huge chunks of cash now to expand credit and branch networks will pay competitive dividends in the longer term. “We have an aggressive branch expansion programme to enable us to take advantage of more business opportunities that would otherwise not be harnessed,” he tells Emerging Markets.
He has a point: deposits grew 78.5% over the last financial year, powered by this branch expansion programme. This will enable Zenith to redirect its capital away from risk-adjusted returns from safe government Treasury bills and into the nascent but lucrative universe of consumer lending.
Ovia plans to grow fee-based income by undertaking more investment banking activity. In particular, he is looking, he says, to “increase shareholder value by enhancing and diversifying income from processing, and confirming trade finance and letters of credit transactions in-house”.
He says the bank is well placed to compete against domestic and foreign rivals after the introduction this year of its own data services platform, linking all Zenith’s branches in real time.
Zenith also signalled its global ambitions last year when it became the first Nigerian institution to be granted a full UK banking licence; at the same time, it established subsidiaries in Ghana, Sierra Leone, China and Dubai. This is a key strategy to reduce the systemic risk all Nigerian banks face: a volatile oil price that could imperil the country’s growth.