Nigerian banks' interest expense on deposits surges 68% in H1 2022

Nigerian banks which have released their half-year 2022 financial results on the Nigerian Exchange Group recorded a collective growth of 68 percent in interest expense on deposits from their customers.

The banks include First Bank, Zenith Bank, FCMB, Stanbic IBTC, Sterling Bank, Union Bank, and Wema Bank. The market awaits the release of the 2022 half year results of UBA, GTCo, and Access Bank.

First Bank, Zenith Bank, FCMB, Stanbic IBTC, Sterling Bank, Union Bank and Wema Bank recorded a cumulative N193.79 billion as interest expense at half year 2022, up from N115.46 billion in the first half of 2021.

“There are two major contributory factors, which are sustained liquidity pressures and the CBN’s hawkishness. On the first, financial system liquidity has been persistently tight, highlighted by the banks’ net borrowing of N2.1 trillion at the CBN discount window over the six months. Amidst this, interbank rates were elevated, in double-digit territory, for most of the review period,” Samuel Oshinuga, equity research analyst at CardinalStone Securities, said.

He also noted that as a result, there has been increased competition for funds among banks, leading to higher offered rates on customer deposits.

“The CBN’s switch to a hawkish monetary stance was demonstrated by the MPC overseeing two rate hikes thus far in 2022. Since May, the MPR has been jolted from 11.5 percent to 14 percent, resulting in a more robust interest environment for assets and liabilities. Consequently, this increment drove higher the applicable minimum rates on some customers’ deposits,” Oshinuga added.

According to him, a cumulative effect of these factors is a negative pass through to interest expense.

He added: “Although, we have seen an on-going tilt in banks’ pursuit of funds to the cheaper retail segment and with liquidity still constrained and the recent CBN directive on savings deposits rate normalisation, we could see this trend continue for some time.”

“Broadly speaking, it reflects the upward movement in the interest rate environment. Interest income and expenses are sensitive to rate movements, therefore it is expected to see higher interest expense given the elevation in rates in FY’22,” Ngozi Odum, financial services analyst at CardinalStone, said.

She, however, noted that specifically on the individual banks, “the impact varies and is mostly dependent on the bank’s holdings of current deposit,” she said.

Bank Analysis

First Bank

First Bank recorded the highest interest expense on deposits from its customers in the first half of 2022. The bank led the other banks with N48.49 billion as interest expense on deposits from customers, indicating a 57 percent increase from N30.82 billion in the same period of last year.

The bank’s deposits from customers in the first half of 2022 amounted to N3.38 trillion, up 33 percent from N2.54 trillion in the first half of 2021.

Zenith Bank

Zenith Bank ranked second with a 37 percent increase in interest expense on deposits from its customers at N35.79 billion in the first half of 2022, up from N26.16 billion recorded in the first half of 2021.

Analysis based on account type showed Zenith Bank recorded an interest expense on deposits from current accounts to reach N8.82 billion in the first half of 2022, a huge 89 percent from N4.66 billion in the previous year.

Interest expense on deposits from savings accounts amounted to N9.85 billion, indicating a 35 percent increase from N7.26 billion in the first half of 2021. Also, interest expense on time deposits increased by 20 percent to N17.13 billion in the first half of 2022, up from N14.24 billion in the same period of last year.

Zenith Bank received a sum of N1.97 trillion as deposit from its customers in the first half of 2022, indicating a 26 percent increase from N1.56 trillion in the first half of 2021.