The top five banks in Nigeria, also known as the FUGAZ, generated the sum of N740.88 billion as interest income in the third quarter of 2022. This represents a 35.9% increase from N545.21 billion recorded in the comparable period of 2021.
This is according to an analysis by Nairalytics, the research arm of Nairametrics, using data culled from the banks’ financial statements as seen on the website of the Nigerian Exchange (NGX).
Interest incomes are revenue earned by banks from lending money to other entities. They are usually the main source of income for financial institutions in the country. On average, interest earnings account for more than half of the total revenue generated by Nigerian banks.
Why the growth
The impressive growth recorded by the banks in their top lines came on the heels of CBN’s decision to increase the benchmark interest rate in a bid to rein on the inflation rate which surged to a record high.
The CBN raised the Monetary Policy Rate (MPR) in May and July to 13% and 14% respectively. This was deemed necessary following the rising cost of goods and services in the country. Hence, a hawkish move by the CBN was aimed at increasing the cost of credit for businesses in a bid to mop up liquidity.
During periods of higher interest rates, banks often record improved revenue from their lending business, which is a major part of their revenue basket. Hence, banks often charge more to customers for obtaining credit from them whenever the apex bank adopts a hawkish monetary policy.
The banks recorded a decline in their interest income in 2020, following the covid-19 pandemic and the low-interest rate regime adopted by the CBN to stimulate growth in the economy, which has now been reversed by the recent CBN tightening stance.
While banks’ interest income depends on the CBN monetary policy rate (MPR), it is also a function of the type and number of customers that the banks have. Typically, banks with more corporate customers tend to earn higher interest earnings compared to retail banking.
Meanwhile, the CBN also increased the negotiable minimum interest rate on local currency savings deposits from 10% to 30% of the MPR. This implies that banks also incurred higher interest expenses for savings deposit accounts in the review period.
A further breakdown showed that the five banks incurred a total of N289.18 billion as interest expenses in the review period, which is 40% higher than the N206.52 billion spent in the previous year. However, the banks were able to post a sum of N451.7 billion as net interest income in the same period.
The banks are expected to print higher numbers in the fourth quarter of the year, after the CBN increased the benchmark interest rate for the third time in a row in September 2022 to 15.5%, which is the highest rate in 20 years.
Below is the breakdown of the interest income of the tier-1 banks in Q3 2022:
Access Bank – N199.67 billion
- Access Bank, the largest bank in the country by total asset value, generated a sum of N199.67 billion as interest income in Q3 2022, a 32.1% increase from N151.18 billion recorded in the same period of 2021.
- On the flip side, the banking giant spent N116.64 billion as interest expenses in the same period, which is 39.7% higher than the N83.52 billion incurred in the previous year, bringing its net interest income to a total of N83.03 billion.
- Meanwhile Access Bank posted profit after tax of N48.26 billion in the review period, outpacing its last year’s performance by 37.1%.
UBA – N162.87 billion
- United Bank for Africa, popularly known as UBA earned N162.87 billion as interest earnings between July and September 2022. This represents a 34.5% increase from the N121.08 billion posted in the corresponding period of 2021.
- UBA however spent N57.82 billion on interest expenses in the same period, bringing the net income to N105.05 billion.
- In terms of profitability, UBA posted a profit after tax of N47.17 billion, a 7.2% increase from N44.01 billion recorded in the previous year.
Zenith Bank – N149.03 billion
- Zenith Bank, the largest Nigerian bank listed on the Nigerian Exchange generated a sum of N149.03 billion in Q3 2022 as interest income from its loans to customers. This is 42.1% higher than the N104.91 billion posted in the previous year.
- Interest expenses in the same period stood at N50.86 billion, a 69% increase from N30.1 billion recorded in Q3 2021. Meanwhile, its net interest income improved by 31.2% from N74.81 billion to N98.16 billion year-on-year.
- The banking giant posted a 15.5% profit growth in the review period, which stood at N62.92 billion from N54.48 billion recorded in the corresponding period of 2021.
First Bank – N144.01 billion
- First Bank made a sum of N144.01 billion from interest earnings in Q3 2022, a 45.3% increase from N99.1 billion recorded in the previous year.
- On the other hand, its interest expenses aggregated to N47.39 billion in the review period, which is 18.6% higher than the N39.96 billion incurred in the previous year, leaving the net interest income at N96.62 billion.
- First Bank saw its profit surged significantly from the previous year, rising from N2.76 billion to N34.69 billion in the period under review. Meanwhile, the astronomical growth could be attributed to base period effect, since its profit fell sharply in 2021 from N18.72 billion recorded in the previous year.
GT Bank – N85.29 billion
- Guaranty Trust Bank recorded a sum of N85.29 billion as interest income in the third quarter of the year, the least compared to the other tier-1 banks. However, it grew by 23.7% from N68.95 billion recorded in the previous year.
- Its interest expenses in the same vein inclined by 26% from N13.06 billion to N16.45 billion in Q3 2022. Net interest income stood at N68.84 billion from N55.88 billion recorded in the corresponding period of last year.
- The second largest quoted company posted a profit after tax of N52.79 billion in the review period, second only to Zenith Bank. Its net profit for the period increased marginally by 5.6% from N49.99 billion posted in the previous year.
