Zenith Bank - Buyer Beware

[cfa]

Zenith Bank is a stock I will be wary of. It is trading purely on speculation and I think their accounting is very aggressive.

The bank recently announced that earnings growth is significantly outpacing revenue growth yoy - a 20% differential, despite the extensive expansion of their retail franchise yoy. This raises an obvious red-flag as to the quality of earnings.

Zenith is one bank (in my opinion) without an adequate impairment loan provision -only one percent when top tier banks average 8%. Note that the more you reserve the lower your profits. Compare the disclosures in their annual report to GTB.

The stock is also largely overvalued on both trailing and forward p/e & price to book value.

I can go on & on based on my analysis, but time is not my friend. Buyer beware.







Zenith
A provision for loan impairment is established if there is objective evidence that the bank will not be able to collect all amounts due according to the original contractual terms of the credit. The amount of the provision is determined in accordance with the Prudential Guidelines issued by the Central Bank of Nigeria.

In addition, a provision of 1% minimum is made for all performing accounts to recognise losses in respect of risks inherent in any credit portfolio.

GTB
(g) Loans and Advances
Loans and advances are stated net of allowances for bad and doubtful loans.
Allowances are determined in accordance with the Central Bank of Nigeria's
Prudential Guidelines from a specific assessment of each customer's account as stated below:
A minimum of 1% general allowance is made on all loans and advances not specifically provided for.
Bad loans are written-off when the extent of the loss has been determined. Recoveries are written back to profit and loss account on a cash basis.

Period principal or interest
has been outstanding required................Classification ..........................% Allowance
90 days but less than........................... 180 days Substandard .................10
180 days but less than...........................360 days Doubtful ......................50
Over 360 days.......................................Lost .......................................100

[pesadilla]

@cfa
thanks for the indept anlys,the price is been driven up to position it for a mark down,time to sale and reposition later.