Zenith Bank’s Ambitious Restructuring Plan Raises Eyebrows Over Growth Projections

By Innocent Eneta

Zenith Bank Plc, one of Nigeria’s largest financial institutions, has embarked on a bold restructuring initiative that will see the creation of a new non-operating holding company, Zenith Bank Holding Company Plc. The move is designed to improve operational efficiency, allow for diversification into non-banking sectors, and align with regulatory requirements set by the Central Bank of Nigeria (CBN). 

However, the bank’s latest Scheme of Arrangement, which details the restructuring process, has raised questions about the feasibility of the bank’s financial projections and the broader impact of the changes on its shareholders.

Aggressive Financial Projections

Zenith Bank’s pro-forma financials, outlined in Appendix III of the restructuring document, paint a highly optimistic picture. The bank expects its total assets to grow from ₦154 billion in 2024 to an eye-watering ₦400 billion by 2029. Investment securities alone are forecast to jump from ₦13.7 billion in 2024 to ₦121 billion within the same period—a near tenfold increase in just five years.

Analysts are skeptical of these figures, noting that the projections are based on aggressive assumptions about both the Nigerian and global economic environments. “The idea that Zenith Bank will grow its investment securities by such a margin, particularly given current economic uncertainty, is overly ambitious,” said a Lagos-based financial analyst.

Furthermore, the plan assumes a 90% dividend payout ratio from 2024 onward—a figure that raises red flags in the context of market volatility and the bank’s liquidity needs. Most competitors maintain payout ratios below 80%, leaving a buffer for operational flexibility. “Zenith’s high dividend projection may strain its liquidity and capital reserves if growth targets are missed,” noted another industry expert.

Restructuring Benefits or Overstatement?

The restructuring of Zenith Bank into a holding company aims to provide operational flexibility and separate the bank’s banking activities from non-banking ventures like Zenpay Ltd, a newly established payment services subsidiary. The document highlights that this new structure will insulate different business units from each other’s performance, mitigating risks.

However, critics argue that the potential benefits might be overstated. While the structure provides legal separation between units, the overall financial performance could still be affected if any major subsidiary underperforms. Furthermore, with ₦750 million being deducted from retained earnings to capitalize Zenpay Ltd and fund the holding company’s operations, concerns have been raised about the immediate impact on liquidity.

Zenith Bank’s restructuring is largely driven by the CBN’s Regulation 3, which prohibits banks from engaging in non-banking activities. By forming a holding company, Zenith Bank aims to diversify its income streams while complying with the regulation. Yet, the success of such ventures, particularly in the payment services space, remains to be seen. Zenpay Ltd will require ₦250 million in initial capital to operate, but the nascent company faces tough competition in the rapidly evolving fintech sector.

Impact on Shareholders

For shareholders, the restructuring means their shares in Zenith Bank Plc will be exchanged for an equivalent holding in the new Zenith Bank Holding Company. While the bank reassures investors that the value of their holdings will remain intact, the high payout ratio and reduction in retained earnings may cause concern for long-term investors.

Additionally, the restructuring’s impact on share value post-listing of the holding company on the Nigerian Exchange Limited (NGX) and the London Stock Exchange (LSE) will depend heavily on the performance of both the banking and non-banking arms.

While Zenith Bank’s restructuring presents potential benefits for operational flexibility and compliance with regulatory mandates, its ambitious financial projections and high dividend payout targets raise questions about the feasibility of its growth strategy. Investors and analysts will be watching closely to see if the bank can deliver on these expectations or if the bold move will introduce new risks to one of Nigeria’s most prominent financial institutions.