ZENITHBANK's non-interest revenue (NIR) will take centre stage in driving its FY'23 earnings performance. We expect NIR to contribute c.60.0% (vs 66.3% in H1’23) of operating income at N1.3 trillion. The robustness of NIR contribution is anchored on the materiality of its H1'23 FX revaluation gain of N355.6 billion. Positively for NIR, we expect this robustness of FX gains to mask the noticeable weakness in net fee and commission income (-7.8% YoY in H1'23).
In FY'23, we expect operating income to print at c.N1.3 trillion, driven by the robustness of NIR. In addition to the significant H1'23 FX gains of N355.6 billion, we expect NIR to be supported by improved trading income, anchored on tactical treasury play and increased market volatility. These two NIR income lines should mask the anticipated 25.6% decline in FY'23 net fee and commission (NFC) to N98.5 billion. Our position for a probable NFC contraction floats on the expected 2.0x surge in fee and commission expense, driven by its surprising c.4.0x jump to N30.5 billion in H1'23. According to management, this jump, is attributable to fees and commission expenses being largely FCY- denominated. Elsewhere, despite noticeable interest expense threats, we expect NII to come in 12.4% higher YoY. For context, in H1'23, interest expense rose by 2.7x to N153.6 billion, on the combined impact of the significant c.65.0% rise in interest-bearing liabilities and the 1.2ppts expansion in cost-of funds to 2.6%. Nevertheless, our optimism for NII is anchored on 1) management's expectation to reprice asset yields in line with the elevated interest rate environment in H2'23, and 2) the robust double- digit growth in interest-earning assets, supported by the +46.9% YoY growth in risk asset in H1'23.