Executive Summary

Zenith Bank Plc posted a pre-tax profit of N625.6 billion (+strong YoY performance), supported by a resilient top-line and an exceptional surge in interest income (+60% YoY to N1.839 trillion). The bank’s strong funding base (customer deposits of N23.48 trillion, 76% of assets) and deliberate exposure to government securities boosted earnings despite weaker loan growth. However, elevated impairment charges (N791.2 billion) highlight asset quality risks, compressing net earnings growth. On balance, Zenith’s H1 2025 results reinforce its reputation as Nigeria’s most deposit-rich and earnings-efficient bank, but also highlight vulnerabilities from credit quality deterioration.

Strengths

1. Strong Core Earnings Power

Gross earnings rose 19.96% YoY to N2.52 trillion, driven by resilient top-line expansion.
Interest income surged 60% YoY to N1.839 trillion, now contributing 73% of gross earnings (vs 55% in H1 2024).
Net interest income soared 89% YoY to N1.35 trillion, highlighting robust spreads and balance sheet efficiency.

2. Diversified Sources of Interest Income

Interest from loans to customers rose 55% YoY to N936 billion, now 37.2% of gross earnings.
Interest from government securities rose 72% YoY to N781.5 billion, reflecting higher T-bill and bond yields as well as a larger securities portfolio (+84% in six months).

3. Solid Funding Base

Customer deposits reached N23.48 trillion (+6.9% YoY), representing 76% of assets.
This low-cost funding base underpins profitability and liquidity stability.

4. Shareholder Value Creation

Interim dividend of N1.25 per share, a 25% YoY increase, demonstrates management’s confidence in earnings resilience and commitment to shareholder returns.

Weaknesses

1. Rising Credit Impairments

Loan loss provisions spiked to N791.2 billion, consuming over half of net interest income.
This raises concerns over loan book quality, especially given a decline in net loans (-3.65% to N9.60 trillion).

2. Decline in Trading Gains

Gains on trading books fell sharply from N871.6 billion in H1 2024 to N482.2 billion in H1 2025, reflecting weaker market-related income.

3. EPS Decline Despite Profit Growth

Earnings per share fell 29.7% YoY to N12.99, suggesting dilution pressures and impairment drag despite higher gross earnings.

4. Limited Loan Growth

Net loans declined to N9.60 trillion (-3.65% YoY) despite stronger deposit growth.
This highlights a cautious lending stance or tightening credit risk environment.

Opportunities

Yield Optimization: Higher interest rate environment favors Zenith’s large government securities portfolio.
Fee and Commission Growth: Strong growth in FX transaction fees (+267% YoY) and account maintenance fees (+32% YoY) supports diversification.
Stage 1 Loan Growth: Stage 1 loans expanded sharply to N4.09 trillion from N1.02 trillion, indicating potential for future revenue generation as credit risk normalizes.
Capital Recycling: Strong liquidity (cash and equivalents +13% to N6.66 trillion) offers flexibility for opportunistic asset deployment.

Risks

Asset Quality Concerns: Elevated impairment charges signal rising NPLs or cautious provisioning, which may pressure future profits.
Margin Pressures from Higher Funding Costs: Deposit costs grew 21% YoY, reflecting tighter competition for deposits in a high-rate environment.
Regulatory and Policy Risks: Potential CBN policies targeting lending expansion or FX exposure could affect spreads and portfolio allocation.
Dependence on Interest Income: With 73% of gross earnings from interest, Zenith is highly exposed to interest rate cycles.

Outlook

Zenith’s H1 2025 results underscore its unmatched deposit franchise, strong net interest margin, and resilient earnings capacity. However, rising impairments and slowing loan growth present red flags that could temper medium-term profitability. With strong liquidity, high shareholder payouts, and continued interest income momentum, Zenith remains attractive for income-focused investors, but total return investors may remain cautious until loan book quality stabilizes.

Conclusion

Zenith Bank stands out as Nigeria’s leading balance sheet and interest income powerhouse, with strong dividend yield potential and scale advantages. However, elevated impairment charges and limited loan growth point to near-term headwinds.

Disclaimer

The user WaneInvestmentHouse holds no position in NGSE:ZENITHBANK. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.