Nigeria’s tier-1 banks grow their interest earnings by 36% to N740.9 billion in Q3

According to Nairametrics, In the third quarter of 2022, the top five banks in Nigeria collectively referred to as the FUGAZ, generated N740.88 billion in interest income. This is an increase of 35.9% from the N545.21 billion reported at the same time in 2021.

Banks generate revenue through lending money to other businesses in the form of interest. They are typically the main source of revenue for the country’s financial institutions. In general, interest income makes up more than half of the overall revenue that Nigerian banks bring in.

Why the growth

Following the CBN’s decision to raise the benchmark of the interest rate in an effort to control the inflation rate, which soared to a record high, the banks’ top lines experienced an unprecedented expansion.

In May and July, the CBN increased the Monetary Policy Rate (MPR) to 13% and 14%, respectively. Given the nation’s escalating cost of goods and services, this was seen to be required. As a result, the CBN took a hawkish action to raise the cost of business lending in an effort to seize liquidity.

Banks frequently report increased revenue from their lending business, which makes up a significant portion of their revenue basket, during times of rising interest rates. Therefore, anytime the central bank implements a hawkish monetary policy, banks frequently charge their customers more for receiving loans from them.

Following the COVID-19 pandemic and the low-interest rate regime implemented by the CBN to boost economic growth, the banks saw a fall in their interest revenue in 2020. The CBN’s recent tightening stance has since rectified this decline.

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Banks’ interest earned is influenced by the CBN monetary policy rate (MPR) and the variety and volume of its clientele. Compared to retail banking, banks with a higher percentage of corporate clients typically generate higher interest earnings.

The CBN also raised the minimum interest rate negotiated on local currency savings deposits from 10% to 30% of the MPR. This suggests that during the review period, banks also incurred increased interest costs for savings deposit accounts.

The five banks spent N289.18 billion on interest expenditures in total during the review period, which is an increase of 40% over the N206.52 billion they finished the year prior, according to a detailed breakdown. The banks were able to report N451.7 billion in net interest income during the same time period, though.

After the CBN raised the benchmark interest rate for the third consecutive time in September 2022 to 15.5%, which is the highest rate in 20 years, the banks are anticipated to publish higher numbers in the fourth quarter of the year.

The tier-1 banks’ Q3 2022 interest income is broken down as follows:

Access Bank – N199.67 billion

A total of N199.67 billion was generated as interest income in Q3 2022 by Access Bank, the largest bank in the nation by total asset value. This is a 32.1% increase from the N151.18 billion reported in the same period of 2021.

However, the banking powerhouse incurred interest costs totaling N116.64 billion at the same time, a 39.7% increase over the N83.52 billion incurred in the prior year, bringing its net interest income to a total of N83.03 billion.
In contrast, Access Bank outperformed its previous year’s performance by 37.1%, reporting a profit after tax of N48.26 billion during the review period.

UBA – N162.87 billion

Between July and September 2022, United Bank for Africa, or UBA, received N162.87 billion as interest income. When compared to the N121.08 billion reported for the same time in 2021, this is a 34.5% increase.
UBA, on the other hand, incurred interest costs totaling N57.82 billion during the same time, bringing the net income to N105.05 billion. The bank reported a profit after tax of N47.17 billion, a 7.2% rise from the N44.01 billion earned the year before.

Zenith Bank – N149.03 billion

In the third quarter of 2022, Zenith Bank, the largest bank in Nigeria listed on the Nigerian Exchange, earned N149.03 billion as interest income on its loans to clients. Compared to the N104.91 billion reported the year before, this represents an increase of 42.1%.

Interest costs increased by 69% from the N30.1 billion reported in Q3 2021 to N50.86 billion in the same period. In the meantime, its net interest income increased year over year by 31.2%, from N74.81 billion to N98.16 billion.
The world’s largest bank reported a 15.5% increase in profit during the review period, reaching N62.92 billion from N54.48 billion in the comparable period of 2021.

First Bank – N144.01 billion

First Bank generated N144.01 billion in interest income in the third quarter of 2022, a 45.3% increase over the N99.1 billion earned in the same period the previous year.

However, its interest costs totaled N47.39 billion during the review period, an increase of 18.6% over the N39.96 billion expended in the prior year, leaving N96.62 billion in net interest income.

In the time under review, First Bank’s profit increased significantly from the prior year, going from N2.76 billion to N34.69 billion. The stratospheric growth, however, could be explained by the base period effect given that the company’s profit dropped significantly in 2021 from the N18.72 billion recorded the year before.

GT Bank – N85.29 billion

Guaranty Trust Bank reported the least amount of interest income among the tier-1 banks in the third quarter of the year, at N85.29 billion. However, it increased from the N68.95 billion reported the year before by 23.7%.

In a similar vein, its interest costs increased by 26% in Q3 2022, from N13.06 billion to N16.45 billion. Net interest income increased from N55.88 billion in the same period last year to N68.84 billion this year.

The second-largest public firm, behind Zenith Bank, reported a profit after taxes of N52.79 billion for the review period. In comparison to the N49.99 billion reported the year prior, its net profit for the period improved merely by 5.6%.