Zenith Bank has 53 percent more equity than two years ago

… but earns less profit

Zenith Bank Plc’s shareholders now own 53 percent more equity than they did at June 2024, but the bank earns 25 percent less profit on it.

Equity attributable to owners rose to N4.88 trillion from N3.19 trillion, while profit after tax fell to N430.8 billion from N578 billion.

Annualised return on average equity has dropped to 17.6 percent from 41.9 percent.

Three things sit behind the drop: a N350.5 billion share issue that added 9.67 billion shares, the retreat of the trading gains that carried profit in 2023 and 2024, and a decision to pay out most of what is earned. The question is whether 17.6 percent is the new normal.

Profit per share fell faster than profit. Earnings per share dropped 43.1 percent because the bank has 30.8 percent more shares, while book value per share rose only 16.9 percent. On N4.9 trillion of average equity, each percentage point of return is worth about N49 billion a year, against N28 billion in H1 2024.

Two cautions apply. H1 2024 was the peak, so measuring from it exaggerates the slide: against H1 2025, profit after tax fell 19.1 percent and return on equity from 24.8 percent. And annualising a half-year doubles any seasonal or one-off item, so the ratios are indicative rather than forecasts.

Where the extra equity came from

Of the N1.69 trillion added to equity, 70 percent is retained earnings, 20 percent is new shares and 9 percent is other reserves. The new shares came from a rights issue of 5.23 billion shares at N36.00 and a public offer of 4.44 billion shares at N36.50.

The offer raised N350.5 billion, of which N343.9 billion appears in share capital and premium, and took the capital base to N614.65 billion, above the Central Bank’s N500 billion minimum for banks with international authorisation.

Those issue prices compare with a book value of N101.66 a share at June 2024.

Retained earnings did most of the work, but the build has paused. They rose only N7.7 billion in H1 2026, because the N359.4 billion final dividend absorbed most of the half-year profit, and equity attributable to owners slipped 0.8 percent from December.

Returns are back where they started

Return on average equity was 18.8 percent in H1 2021 and 17.5 percent in H1 2022. It then jumped to 36.9 percent in 2023 and 41.9 percent in 2024, when trading and other operating income supplied 61 percent and 49 percent of operating income.

By H1 2026, that share was below zero. Zenith has returned to its 2021 return on a base 4.3 times larger, with equity of N4.88 trillion against N1.14 trillion and profit 4.1 times higher.

Return on average assets fell to 2.69 percent from 4.82 percent. Leverage also fell: average assets are 6.5 times average equity, against 8.7 times in H1 2024, and equity now funds 15.0 percent of assets against 11.6 percent. Lower leverage means a safer bank and lower returns.

Why profit fell as the bank grew

Net interest income rose 75.4 percent to N1.25 trillion from N715.1 billion, but trading swung from a N795.6 billion gain to a N92.2 billion loss, so operating income fell 12.5 percent to N1.41 trillion. Operating expenses rose 34.2 percent to N633.8 billion and pre-impairment operating profit fell 31.8 percent to N778.7 billion.

A 66 percent lower impairment charge, N141.1 billion against N415.3 billion, held the fall in pre-tax profit to 12.3 percent. A higher effective tax rate, 32.4 percent against 20.5 percent, widened the fall in profit after tax to 25.5 percent.

Asset quality is not the cause. Stage 3 loans were N618.9 billion against N500.4 billion in H1 2024, but the NPL ratio is 4.92 percent against 4.93 percent, and coverage is 72.4 percent against 71.4 percent. Nor is lending: net loans grew 29.6 percent to N12.05 trillion over two years while deposits grew 34.2 percent to N26.35 trillion, so the loan-to-deposit ratio slipped to 45.7 percent from 47.3 percent. The extra equity and deposits have been held more than lent.

What shareholders got instead

Dividends have taken up the slack. The total dividend for FY2025 was N10.00 a share, 2.5 times the N4.00 for FY2023. The final dividend paid in the half-year rose to N359.4 billion from N109.9 billion in H1 2024, and the interim proposed rose 50 percent to N1.50 a share from N1.00.

The final paid and the interim declared together come to N421.0 billion, or 98 percent of H1 2026 profit attributable to owners, against 24 percent in H1 2024. That mixes two financial years and is a cash comparison rather than a payout ratio, but it explains why retained earnings barely moved.

For a shareholder holding one share over the two years, earnings per share are down 43.1 percent, book value per share is up 16.9 percent and the full-year dividend is up 150 percent. The dividend, not earnings growth, has carried the return.