A new research report by Renaissance Capital Africa has examined the market valuation of banks in Nigeria, ranking Zenith Bank Plc as its top pick ahead of GTCO and ACCESSCORP, while providing broader insights into the banking industry and investment recommendations.
Zenith Bank Plc continues to reinforce its position as one of Nigeria’s most resilient and fundamentally strong financial institutions, with the research highlighting significant upside potential in both valuation and shareholder returns. Following a comprehensive review of the Nigerian banking sector, Renaissance Capital Africa Research identified Zenith Bank as a top conviction pick, reflecting renewed confidence in the bank’s balance sheet strength, earnings quality, and long-term value proposition.
Despite the strong performance of the NGX Banking Index in recent periods, the research indicates that Zenith Bank’s current market valuation does not yet fully reflect its improving fundamentals, leaving room for further upside. According to the report, “Although we expect banks to face challenges in growing earnings, given our outlook for CBN rate cuts, we believe the balance sheet clean-up of forbearance and SOL exposures, along with improvements in cash profits, will support higher dividend payouts relative to prior years. In our view, this should drive market valuations for our coverage banks. As such, our top picks, in order of conviction, are ZENITHBANK, GTCO, and ACCESSCORP.”
A key driver of the positive outlook is the successful balance sheet clean-up arising from the resolution of regulatory forbearance exposures. Loan write-offs and improvements in asset quality have significantly strengthened Zenith Bank’s financial position, providing a more solid foundation for sustainable growth and positioning the bank to benefit from ongoing policy reforms within Nigeria’s financial system. In prior periods, sector-wide profitability was boosted by abnormal foreign exchange-related gains. However, the research notes that these gains were largely unrealised and, in line with regulatory guidelines, could not translate into higher cash dividend distributions. As a result, dividend payouts between 2023 and 2024 remained constrained despite record headline profitability across the sector.
Historically, Zenith Bank has demonstrated a strong commitment to shareholder returns. In 2021 and 2022, the bank recorded one of the highest dividend payout ratios in the sector, supported by robust cash generation and disciplined capital management. Looking ahead, analysts expect a return to higher and more sustainable dividend payout ratios as cash profits improve and balance sheet pressures ease. This anticipated recovery in dividend capacity is viewed as a key catalyst for enhanced market valuation, particularly as investors increasingly prioritise income stability and payout consistency.
Reflecting these developments, Renaissance Capital Africa Research upgraded Zenith Bank from HOLD to BUY and increased its target price by 96 per cent. The upgrade reflects improved valuation assumptions, including a lower risk-free rate aligned with changes in government bond yields, as well as refined beta estimates. Although sustainable return on equity assumptions have been moderated to account for near-term earnings growth challenges, the research maintains that Zenith Bank’s valuation remains compelling.
The report concludes that the combination of a cleaner balance sheet, stronger cash earnings, and improved dividend prospects positions Zenith Bank for superior long-term value creation. The bank is described as standing at a pivotal stage, transitioning from a phase of balance sheet repair to one of renewed growth and enhanced shareholder value. As regulatory headwinds ease and earnings quality improves, Zenith Bank is considered well-positioned to deliver stronger dividends and unlock further market value.
The positive assessment aligns with Zenith Bank’s continued dominance in the Nigerian banking sector. The bank recently retained its position as the number one bank in Nigeria by tier-1 capital for the 16th consecutive year, reinforcing its status as a leading financial institution with a proven track record of resilience, prudent governance, and sustained performance.
