How Zenith Bank sustains top rating under Onyeagwu

Last month, Mr Ebenezer Onyeagwu marked two years since he assumed the position of Group Managing Director and Chief Executive Officer (GMD/CEO) of Zenith Bank.

A better part of that period came with the challenging macro-economic environment brought about by the COVID-19 pandemic, among others challenges.

However, Zenith Bank, under the leadership of Onyeagwu, has maintained its leadership position in the banking industry.

In rising to the occasion, Onyeagwu has demonstrated that he has the wherewithal to supervise a management that will continue to deliver strong financial performance that the bank has been churning out.

A careful analysis of key parameters such as asset quality, profitability and return to investors, Zenith Bank’s track record has been impressive.

The numbers indicate that the bank is a clear market leader, growing its total assets and net income by an annual average of 15.7 percent and 15.5 percent over the last five years, according to the latest banking report released by Coronation Merchant Bank.

Also, in the area of corporate governance, which is a vital ingredient in ensuring the sustainability of any institution, Zenith Bank under Onyeagwu has maintained a positive rating as can be seen from the recent assessment by the Nigerian Exchange Limited (NGX) hence the financial institution’s listing on the Premium Board of NGX.

The bank places a premium on its core business strategy anchored on people, technology and service to create value for its numerous clientele.

With a team of dedicated professionals, the bank leverages its robust Information and Communication Technology (ICT) infrastructure to provide cutting-edge solutions and products through its network of branches and electronic/digital channels.

Zenith Bank under Onyeagwu’s watch has remained committed to sustaining the legacy of its visionary founder and Chairman, Mr Jim Ovia, whose pioneering and foundational role in building the structures and laying the foundation ensured an enduring and very successful institution.

In recognition of its track record of excellent performance, Zenith Bank was ranked the number one bank in Nigeria by Tier-1 Capital in 2021. Top 1,000 World Banks’ Ranking published by The Banker Magazine, a publication of the Financial Times Group of the United Kingdom.

The bank, with a Tier-1 Capital of $2.64 billion, retained its ranking as the number one Tier1 bank in Nigeria for the third consecutive year.

It, however, emerged as the 454th bank globally and the only Nigerian bank in the top 500.

The ranking, which was published in the July, 2021, edition of the magazine, was based on the 2020 year-end Tier-1 capital of banks globally.

Its audited results for the full year ended December 31, 2020, indicates that it recorded significant earnings’ growth. For instance, the bank’s net interest stood at N299.682bn, up from N267.031bn in 2019, while net fee and commission income was N79.332bn as against N100.106bn in 2019. Its Profit Before Tax (PBT) grew from N243.294bn to N255.861bn, just as profit after tax (PAT) rose by 10.4 per cent to N230.565bn from N208.843bn in 2019.

Loans and advances improved from N2.306 trillion to N2.779tn, while customers’ deposits rose from N4.262tn to N5.339tn. Total assets rose from N6.347tn to N8.481tn in 2020.

Zenith Bank’s financial performance for the year was underpinned by an eight per cent growth in non-interest income, with an improved market share in both retail and corporate sectors.

Providing insights into the bank’s 2020 financial results, Onyeagwu explained that Zenith was the biggest bank in the country, and that given its size, it was important to maintain a certain optimal level of cash balances to meet the transactions and the needs of its customers.

He said, “Again, you need to understand that the cash balance you see today is not what you will see tomorrow. You may end with N55bn at the reporting time and you move in the next day, that balance may come down to N20bn or even N10bn, depending on the transaction flow.

“So, essentially, as a big bank, with our asset size and huge liquidity position, we need to keep a level of cash holding to meet our daily needs.”

Tier-1 Capital describes capital adequacy, and it is the core measure of a bank’s financial strength from a regulator’s point of view.

According to the ranking, Tier1 Capital, as defined by the latest Bank for International Settlements (BIS) guidelines, includes lossabsorbing capital, i.e. common stock, disclosed reserves, retained earnings and minority interests in the equity of subsidiaries that are less than wholly owned.

Speaking on the ranking, Onyeagwu said it was a demonstration of the bank’s resilience and doggedness as an institution given the very challenging macro-economic environment brought about by the COVID-19 pandemic.

He said it was also an affirmation of Zenith Bank’s commitment to “delighting and creating value for our customers through a broad range of superior product offerings, best-in-class service and top-of-the-range technology.”

He thanked the bank’s customers for making Zenith Bank their choice.

This award is the latest among many awards and recognitions that the bank has received in recent times for its track record of excellent performance and commitment to global best practices.

For instance, Zenith Bank under Onyeagwu’s leadership had also been voted as Bank of the Year (Nigeria) in The Banker’s Bank of the Year Awards 2020; Best Bank in Nigeria in the Global Finance World’s Best Banks Awards 2020 and 2021; and Best Corporate

Governance Financial Services, Africa 2020 and 2021 by the Ethical Boardroom.

In a clear demonstration of its resilience, the bank’s recently announced unaudited results for the first quarter ended March 31, 2021, showed that its PAT rose to N53.1bn, from N50.5bn recorded in March, 2020.

This was despite a very challenging macroeconomic environment aggravated by the COVID-19 pandemic.

According to the bank’s unaudited statement of account for the first quarter of 2021, the Group’s profit before tax also grew from N58.8bn to N61bn in the same period.

The profitability was driven by the optimisation of the cost of funds and improvement in noninterest income.

In addition, the bank’s cost of funds reduced significantly from 2.6 percent in March, 2020, to 1.1 per cent in March, 2021. This also reflected in interest expense which dropped by 45 percent from N32.8bn to N18bn over the same period.

The chief executive officer has continued to assure investors and stakeholders that the commercial bank will continue to accelerate its retail and digital banking initiatives in order to sustain its positive performance.

He also pointed out that even though the tier-1 bank has over the years grown organically, it might go into a business combination deal whenever it sees value.

Responding to a question on the likely drivers of the bank’s operating expenses, Onyeagwu said it was a combination of so many things. “Of course, we are scaling up in terms of our cybersecurity initiative because as we continue to grow in our digital expansion programme.

He added that, “It is also important that we make adequate provision to deal with the downside effect of implementing a digital banking regime, which has also seen a rising case of cybercrime.

“So, we are also scaling our investment in terms of what we have, to contend with the everincreasing risks we see in the environment. That in a nutshell explains the rise in our digital banking initiative.”

While highlighting the effects of the high cost of doing business in Nigeria on Zenith Bank, he also pointed out that regulatory costs, such as the Nigeria Deposit Insurance Corporation (NDIC) premium as well as the Asset Management Corporation of Nigeria (AMCON) charge, place heavy burden on financial institutions.

“When you are looking at the cost of doing business, you also need to look at in total, how businesses are being conducted. If I set up a branch today, I would need to provide my infrastructure, I need to provide power, water and in some cases we even construct roads to provide access to the branch location.

“We also have things like regulatory costs. A bank like Zenith, given our size, the burden of regulatory cost on us is heavy. By regulatory cost here, I am referring to the NDIC premium and AMCON charge.

“So, because of our size, if you look at the numbers, you will see that this regulatory cost accounts for a whopping 28 percent of our overhead. So, all of them come together to add to the cost of doing business for us as a banking institution in the country,” he added.

He urged Nigerians, especially operators of SMEs to take advantage of the various intervention funds that had been created by the Central Bank of Nigeria (CBN).

Responding to a question on the bank’s acquisition plan, Onyeagwu said: “First is to say that Zenith Bank has grown organically, we are disciplined, we are focused and we look for where to extract value.

“However, we would not do a deal or a corporate action just for the sake of doing it. If we find a deal that fits into our profile, of course we would do a deal. It has to be something that fits into our profile.

“Until we find such, we will continue to grow organically. We are already in Ghana, we are in Sierra Leone, Gambia and the UK, and by no means that is not to say that we cannot expand beyond these locations. It depends on what we see as events continue to unfold.”