BusinessDay
NigeriaDecides2023

Nigerian banks’ interest expense surges 34% in Q3 on interest rate hike

Nigerian banks’ interest expense spiked by 34 percent, indicating the highest increase in five years on the back of interest rate hikes which caused a high operating environment for deposit money banks.

The Central Bank of Nigeria(CBN) raised its benchmark interest rate, known as Monetary Policy Rate (MPR) to 15.5 percent in September which was the third straight hike this year. CBN also raised the cash reserve ratio (CRR) to 32.5 percent from 27.5 percent.

According to the CBN, the interest rate hike was in consideration of the persistent rise in the inflation rate and fragile growth. Nigeria’s headline inflation accelerated to 20.77 percent in September 2022.

The apex bank in Nigeria had previously increased the MPR by a combined 250 basis points to rein in inflation. In May 2022, CBN raised its benchmark interest rate by 150 basis points to 13 percent, the first time in six years.

In July 2022, again, the CBN raised the lending rate from 13 percent to 14 percent, citing increased inflationary pressure brought about by the Russia-Ukraine war, and the need to correct financial imbalances in the economy

Analysts are of the opinion that the rising interest expense is as a result of a higher interest rate environment and tight market liquidity during the period.

“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,” NgoziOdum, financial services analyst at CardinalStone, said.

First Bank, UBA, GTco, Access, Zenith, Fidelity, Stanbic IBTC, Sterling, Wema, and Union Bank recorded a cumulative interest expense of N962.6 billion in the third quarter of this year, as against N718.1 billion in the same period of last year.

Analysis of interest expenses by individual banks

Access Bank
Access Bank topped the interest expense chart which surged to N291.4 billion in Q3 2022, up 43.4 percent from N203.2 billion in September 2021.

A breakdown of its interest expense by sources showed that it came from deposits from customers (60.3%), deposits from financial institutions (21.8%), interest-bearing borrowings and other borrowed funds (11.7%), debt securities issued (5.8%), and lease liabilities (0.2%) and to the total interest expense of N291.4 billion in September 2022.

Interest expense on deposits from financial institutions amounted to N63.5 billion in Q3 2022, a 31.4 percent increase from N48.3 billion in September 2021. The interest expense on deposits from customers jumped 66.3 percent to N175.8 billion in September 2022 from N105.7 billion in September 2021.

Access Bank’s interest expense on debt securities issued climbed 8.3 percent to N17 billion in September 2022 from N15.7 billion in the same period of last year. However, interest expense on lease liabilities amounted to N780 million, a 20.4 percent drop from N980 million in the comparable periods.

Interest-bearing borrowings and other borrowed funds to N34.3 billion, up 5.8 percent from N32.4 billion in September 2021.

UBA

UBA interest expense dropped 4.2 percent to N137.7 billion in September 2022 down from N144.4 billion in September 2021. The interest expense consists of contributions from deposits from banks (12.4%), deposits from customers (72%), borrowings (14.8%), and lease liabilities (0.6%) in the nine-month period of 2022.

Interest expense on deposits from banks rose to N17.1 billion, up by 155.2 percent from N6.7 billion in the previous period.UBA incurred interest expenses of N99.2 billion on deposits from customers in September 2022, up 26.3 percent from N78.5 billion in September 2021.

Interest expense on borrowings rose to N20.5 billion, a 28.5 percent increase from N28.7 billion in September 2021. Lease liabilities climbed 73 percent to N805 million in September 2022 from N465 million in September 2021.

Read also: Naira redesign: Access Bank provides alternative channels for cash deposits

First Bank
First Bank’s interest expense surged to N120.8 billion in September 2022, up 24.3 percent from N97.15 billion in September 2021. Disaggregation of its interest expense showed the contributions of deposits from customers (64%), deposits from banks (21%), borrowings, and others (15%) in the nine-month ended September 2022.

Interest expense on deposits from customers amounted to N77.2 billion, up 42 percent from N54.3 billion in September 2021.

Deposit from banks jumped 6.7 percent to N25.4 billion in September 2022 from N23.8 billion in September 2021. Borrowings and other interest expenses dipped to N18.17 billion in September 2022, a 4.3 percent increase from N19 billion in September 2021.

Zenith Bank
Zenith Bank’s interest and similar expenses surged 45 percent to N107.8 billion from N74.1 billion in September 2021. The bank’s interest expense came from contributions from current accounts (10.7%), savings accounts (16.8%), time deposits (29%), borrowed funds (41.3%), and leases (2%) in the nine-month of 2022.

Interest expense on current accounts amounted to N11.6 billion, a 72 percent increase from N6.74 billion in September 2021. Savings accounts’ interest expense climbed 53 percent to N18.1 billion in September 2022, from N11.8 billion in September 2021.

Time deposits increased to N31.3 billion in September 2022, a 29.3 percent increase from N24.2 billion in September 2021.

Interest expense on borrowed funds increased to N44.6 billion in September 2022, a 43 percent increase from N31.2 billion in September 2021. Interest expense on leases amounted to N2.25 billion in September 2022, while no interest expense was recorded in 2021.

Fidelity Bank
Fidelity Bank’s interest expense reached N98.5 billion in September 2022, a 36 percent increase from N72.4 billion in September 2021. Disaggregation of interest expense showed the contribution of term deposits (55.7%), debts issued and other borrowed funds (33.6%), savings deposits (4.8%), current accounts (3%), inter-bank takings (0.3%) and intervention loan (2.5%).
Interest expense on term deposits amounted to N54.9 billion, up 24.7 percent from N44 billion in the nine months ended September 2021. Interest expense on debts issued and other borrowed funds stood at N33.1 billion, a 47 percent increase from N22.5 billion in September 2021.

Savings deposits interest expense rose to N4.8 billion in September 2022, representing a 60 percent increase from N3 billion in September 2021. Also, interest expense on current accounts rose to N3.11 billion, up 7.2 percent from N2.9 billion in the period reviewed.

Interbank takings’ interest expense amounted to N33 million, a 312.5 percent increase from N8 million in the comparable period. Interest expense on the intervention loan amounted to N2.53 billion in September 2022 while no interest expense on the bank intervention loan in the previous year.

Union Bank
Union Bank’s interest expense rose to N59 billion in September 2022, amounting to 22.6 percent increase from N48.13 billion in September 2021. Interest expense disaggregation showed it came from deposits from customers (63.5%), lease liability (1.06%), and other borrowed funds (36%).

Deposits from customers’ interest expenses increased to N37.5 billion in September 2022, up 65.2 percent from N22.7 billion in September 2021. Interest expense on lease liability dropped to N63 million, 58 percent from N150 million in September 2021.

The interest expense on other borrowed funds dipped 15.4 percent to N21.4 billion from N25.3 billion in the period reviewed.

GTco
GTco’s interest expense climbed 33 percent to N42.8 billion in September 2022, up from N32.1 billion in September 2021. GTco’s interest expense comprised deposits from banks (2.8%), deposits from customers(91.8%), financial liabilities held for trading(0.5%), and 0ther borrowed funds (4.6%) in the nine-month ended September 30, 2022.

The interest expense on deposits from banks increased by 8 percent to N1.22 billion in September 2022 from N1.13 billion in September 2021. Deposit from customers’ interest expense jumped 36.4 percent to N39.3 billion, up from N28.8 billion in the period reviewed.

Interest expense on financial liabilities held for trading increased to N228 million, a 26 percent increase from N311 million in September 2021. The interest expense on GTco’s other borrowed funds climbed to N2 billion, up 8 percent from N1.85 billion in the comparable periods.

Wema Bank
Wema Bank’s interest expense grew 79.6 percent to N41.5 billion in September 2022 from N23.1 billion in September 2021. The disaggregation of interest expense showed that it came from deposits from banks (6.24%), deposits from customers (82.9%), and other borrowed funds (10.8%) to the total interest expense in the period ended September 2022.

The interest expense on deposits from banks increased to N2.59 billion in September 2022, a 25.7 percent increase from N2.06 billion in September 2021. Deposits from customers’ interest expenses rose to N34.4 billion, up 101 percent from N17.07 billion.

Other borrowed funds grew by 13.1 percent to N4.49 billion from N3.97 billion in the comparable period.

Sterling Bank

Sterling Bank’s interest expense climbed to N35.4 billion, representing a 1.4 percent increase over N34.9 billion in June 2021. The disaggregation of Sterling Bank’s interest expense showed deposits from banks (8.6%), deposits from customers (59%), other borrowed funds (17%), debt securities issued (14%), and interest on lease liability (2%), which contributed to the total of N35.4 billion in nine months 2022.

Interest expense on deposits from banks rose to N3.04 billion, up 64 percent from N1.85 billion in the period reviewed. Interest expense on deposits from customers dipped 1 percent to N21.2 billion from N21.48 billion in the comparable period.

Other borrowed funds’ interest expense dipped just 0.1 percent to N6.16 billion from N6.17 billion in September 2021. Its interest expense on debt securities issued was N5 billion, dropped 1 percent from N5.05 billion in the comparable period. Interest expense on lease liability stood at N8 million, dipped 20 percent from N10 million in September 2021.

Stanbic IBTC Holdings
Stanbic IBTC’s interest expense rose to N27.4 billion in September 2022, a 44.2 percent increase from N19 billion in September 2021.

Disaggregation of interest expense showed that it came from savings accounts (3.7%), current accounts (4%), call deposits (1%), term deposits (32%), interbank deposits (14%), borrowed funds (43%), and lease expense (2.2%) to the total interest expense in the period ended September 2022.

Savings accounts’ interest expense climbed 22 percent to N1.02 billion in September 2022 from N836 million in September 2021.

Interest expense on current accounts rose to N1.3 billion in September 2022, up 6.5 percent from N1.22 billion in September 2021. Call deposits interest expense stood at N450 million, up 171 percent from N166 million in the period reviewed.

Interest expense on term deposits amounted to N8.84 billion, up 73.6 percent from N5.09 billion in the comparable period. The interest expense on interbank deposits stood at N3.9 billion, 11.4 percent from N3.5 billion in September 2021.

Interest expense on borrowed funds climbed 44 percent to N11.8 billion from N8.19 billion in the comparable period. Interest expense on lease amounted to N6 million, up 60 percent from N4 million in the reviewed period.