Zenith and GTB, ‘Cheating’ Recessed Economy To Making Huge Profit

Both Zenith and Guaranty Trust Bank Plc are the major contenders in the banking sector in terms of profitability and functionality. While GTB pride itself as retail banks, Zenith is not as much a retail bank but its recent moves indicate desire to join the market.
Different strategies for the same industry contenders; rivalry peaked in 2017 in the same economy, yet different results. It took Zenith Bank 50 kobo to make N1 while GTB spent 20 kobo to make N1.
Holding sway at the helms of affairs of the two banking giants in the economy is Mr. Peter Amango who succeeded Mr. Godwin Emefiele and Segun Agbaje.
What did these banks do to make profits?
Who did better in 2017? Don’t forget the year presented a lot of challenges, albeit uncontrollable by executives. However, executives responded differently to ensure profits above all other thing are met.

Now, let’s play the game of numbers. Thus, all other voices should remain silent. Here we go!

Deposit drive in GTB has always been aggressive. The bank remains one of the highest albeit relative deposits takers in the economy. In 2017, Zenith group has N3.437 trillion as deposits taken from customers from N2.983 trillion in 2016 while GTB held N2.06 trillion as against N1.986 trillion in 2016.
Relatively, Zenith grew its deposits from customers by 15.21% compare with a 3.83% surge in deposit accounts held by GTB. Zenith is more of a corporate bank and it is expected to see large deposit passing through while GTB focus more on retail lending. We will see the impact the drive in cost of funds and perhaps cost to income ratio.
At the retail end, cost of funds tends to be lower or rather cheaper compare to what is obtainable with corporate accounts. To confirm how the game went, let’s look at interest expense behaved.
Reflecting an increase in return by suppliers of funds, the Zenith group recorded an upsurge in interest and similar expense from N144.378 billion paid in 2016 to N216.637 billion in 2017. More than 50 per cent of interest expense paid went to time deposit followed while 37% of the expense was attributed to borrowed funds and leases.
The breakdown further shows that while interest expense paid to current accounts holders account for about five per cent of the sum, there was a significant increase from amount paid in the comparable years. Against N4.125 billion paid as interest to current accounts holder in 2016, the group funded the account with N10.029 billion in 2017.
But GTB stayed cool with relatively cheap deposits as it mounts pressure in the market. GTB paid N80.67 billion on total interest income of N327.33 billion while Zenith paid N216.4 billion on total interest income of N474.63 billion in 2017.
It means that GTB expended 20.24 per cent of interest income generated to fund its interest earnings assets while Zenith spared as much as 50 per cent. But both have to take out impairment charges.
So, GTB took out N12.169 billion as impairment charges base on its judgement on the quality of assets the bank held in 2017. Total impaired loans and advances for GTB was 7.66 per cent of its loans asset valued at N116.20 billion from N61.20 in 2016.
Zenith bank Plc also net off impairment charge of N98.22 billion from N474.63 billion interest income from financial assets. For Zenith, significant chunk of the impairment provision was due to term loans (N65.9 billion).
Both GTB and Zenith rode on trading activities to strengthened income given attractive yield on Treasury bill. That’s about to go away in 2018 as yield is on decline. A new gold mine has to be discovered at Broadstreet.
That takes us to cost of funds.
Size is good, perhaps relevant given the size of the market itself. But, operational conducts, strategies and approach could make a corporate entity outlive, outperform those that hold size as their biggest assets.
From the numbers, you will observe the two banks have similar target but different approaches. It was a challenging time for the strategists at the banks and they managed to deliver strong bottom lines but with different moves. The question is: where are banks making their billions in profits?
Zenith participated in the fixed income market heavily in 2017, and maintained its risk assets portfolio to suit market demand. GTB also backtracked from increasing risk assets yet it declared N170.5 billion as profit after tax. As for Zenith, the group profit after tax settled at N177.93 billion.
Zenith Bank average cost per deposit berthed at 5.2 per cent in 2017 from 4.12 per cent in 2016 while GTB settled for 3.3 per cent in 2017. It safer to say that Zenith was burden by high input cost compare with GTB.
Between the two, GTB is stronger in the retail market and the recent move by Zenith confirms that the leadership is well aware of their cost structure. Unlike in the past, to open savings account with Zenith, your pocket must be deep. Things are changing but it has to play catch up with the likes of GTB.
In spite of rising high cost funding mix at Zenith, its cost to income ratio moved to from 48 per cent to 42.9 per cent at the time when GTB cost proportion to income jerked up to 36.4 per cent from 32.7 per cent in 2016. It therefore means that at overall level, GTB cost proportion to income jerked up in the year.
Investors’ wealth was maximized by the two banks. Zenith earned N5.70 per share and declared N2.70 as dividend while GTB earned N5.76 kobo on a share. While economists say all things being equal, the market understands inequality and factors it resource allocations.
In 2017, Zenith provided a 7.9 per cent yield as against 5.1 per cent delivered by GTB. The share price also exhibits different behaviour. Analysts at Afrinvest posit that Zenith Bank share is grossly undervalued.
Loan to deposit ratio for the two banks moderated from previous high position. In 2016, proportion of Zenith bank loans to its total deposit was significant at 92.1 per cent. At the end of 2017, the group brought it down to 75.5 per cent to allow for growth in 2018.
GTB also exhibited similar move as it loans to deposit ratio from 75.3 per cent to 65.5 per cent in 2017. GTB Plc has ample capacity to grow loans compare to Zenith.

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