We are downgrading our recommendation on the Zenith Bank (ZENITH) 7.375% 2022 bond to Hold from Buy. This solely reflects the strong performance of the bond. The ZENITH 2022 now yields c4.6%, down from c7.5% at the start of the year. In addition, the bond is quoted almost 30bps tighter than the NGERIA 6.375% 2023 security.
Fundamentals at Zenith Bank remain very strong. Net income of cNGN39bn in Q2 meant this lender generated an annualised ROE of more than 19% on our calculations. While this was lower than in Q1 19, the ROE did improve yoy. Strong non-interest income and good cost control were key positives. Further, capital and liquidity metrics remained solid. Provisions did rise from very lower levels, and Zenith Bank’s reported LDR declined, ahead of the planned implementation of a minimum 60% LDR at the end of September. We note that Zenith Bank is looking to boost retail lending as one way to address this.
There will likely be questions about the outlook for loan growth and the potential impact of regulatory changes on Wednesday’s results call. We still see Zenith Bank as a best-in-class lender and expect profitability and other metrics to continue to compare well to most peers’ figures.