Although profit before provisions of N114bn showed a greater decline (-8% y/y), those on the provisions and opex lines proved significant, helping to limit the decline on the PBT line.
Both revenue lines contributed to the decline in profit before provisions: while funding income was flattish, non-interest income fell -16% y/y because of base effects.
Also on a q/q basis, because of base effects again, the bank recorded a marked fall of -42% q/q for non-interest income.
Notwithstanding, non-interest income actually surprised positively, coming in much stronger than we had expected. Given a lackluster performance in funding income however, the impact of the better-than-expected non-interest income result was not felt. A significant positive surprise in loan loss provisions was the main reason for Zenith’s better-than-expected PBT (and PAT) result.
The market is likely to take some time to digest these results. On the one hand, the y/y comparables show declines on revenues and earnings. And the q/q changes in revenue are also weak, similar to what we have observed for other tier 1 banks. On the other hand, the positive surprise on the provisions line is significant. Some will argue that Q4 may throw up some major negative surprises on this line in particular – effectively a justification to discount the surprise in Q3. While we would not dismiss this view completely, we doubt the extent of a q/q jump in provisions in Q3 will be of such magnitude to validate consensus’ N173bn FY 2017E PBT estimate. To our mind, this forecast is very conservative. As such, we expect a positive reaction to these results, even if delayed. We would encourage investors to buy into any sell-off on the back of these results.