Bank’s interest expense hits N789.15 billion in Q3

The cumulative interest and similar charges of 12 banks that have released the third quarter (Q3) 2017 results surged by 44.14 per cent to N789.15 billion. This compares with N540.64 billion recorded in the corresponding period of last year.
The banks are Zenith, Access, Diamond Bank, Fidelity Bank, First City Monument Bank (FCMB), Guaranty Trust Bank (GTBank), Stanbic IBTC Holdings, First Bank of Nigeria Holding (FBNH), United Bank for Africa (UBA), Union Bank, Sterling Bank and Wema.
Analysts say rising interest expense is as a result of higher interest rate environment and tight market liquidity during the period.

The introduction of federal government savings bonds and the preference of customers for treasury bills due to their yield have compelled banks to increase their rates on deposits to reduce the outflow of funds their vault to the CBN, according to Johnson Chukwu, managing director and Chief Executive Officer of Cowry Asset Management Limited.
Zenith’s interest expense spiked by 67.15 per cent to N160.29 billion in September 2017 from N64.44 billion the previous year. Deposits from customers were up 83.03 per cent to N127.50 billion.

Access Bank’s interest expense surged by 66.15 per cent to N124.40 billion in the period under review as against N74.83 billion the previous year. Deposits from customers were 53.13 per cent to N91.19 billion.
FBNH’s interest expense increased by 34.15 per cent to N101.73 billion in September 2017 as against N75.67 billion the previous year. Deposit from customers was up 37.04 per cent to N84.75 billion.

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Fidelity Bank’s interest expense was up 38.12 per cent to N56.56 billion in the period under review as against N40.98 billion the previous year. Deposits from customers increased by 50.75 per cent to N44.88 billion as at September 2017.
Diamond Bank’s interest expense was up 46.52 per cent to N42.15 billion in the period under review as against N28.94 billion the previous year.
Analysts also attribute the rise in interest expense to the high interest as the central bank has refused to lower borrowing cost.
The Monetary Policy Committee of the central bank held the key policy rate at 14 per cent as it seeks to curb inflation and regulate the economy.

FBHN’s cost of funds grew to 3.5 per cent in the period under review from 2.70 per cent the previous year. The lender attributes the rise in Cof to high-interest rate environment but remains flat from last quarter.
Access Bank’s cost of funds rose to 6.4 per cent in the period under review from 5.0 per cent the previous year.

Nigerian banks are making money from government securities as interest income on treasury bills (T-bills) of the 9 lenders that have released third-quarter results spiked by 58.64 per cent to N484.46 billion in September 2017.

The banks are Guaranty Trust Bank (GTBank), Zenith, Access Bank, United Bank for Africa (UBA), First Bank Nigeria Holdings Plc, Stanbic IBTC Holdings Plc, Sterling Bank, Fidelity Bank and Wema Bank.

READ ALSO: Nigeria’s high system liquidity pushes investors to ignore 13.2% inflation risk

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The combined net interest income and similar charges of the 9 lenders spiked by 23.37 per cent to N1.21 trillion in the period under review, thanks to contributions from interest income from loans and advances and improved yield on government securities.

The boost to net interest income may be temporary, as T-Bill yields have reduced in recent weeks, falling to about 15.5 per cent from their mid-year levels of just over 18.5 per cent, and they may decline further, according to a recent report by Fitch Ratings.

The Nigerian government has been issuing T-Bills at a high yield to control inflation, raise money to fund capital projects.

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The Central Bank of Nigeria (CBN) has revealed plans to sell N917.1 billion worth of treasury bills in the next three months ending November 30.

A breakdown of the figure shows GTBank’s interest income on T-Bills surged by 132.43 per cent to N75.79 billion while interest income on loans and advances were up 9.25 per cent to N153.80 billion as at September 2017.

Zenith Bank’s interest income on T-Bills surged by 125.79 per cent to N84.15 billion as at September 2017 while interest income on loans and advances were up 15.61 per cent to N241 billion the same period.

READ ALSO: Rising inflation could send T-bills higher in the next auction

UBA’s interest income on T-Bills spiked by 131.75 per cent to N47.19 billion in the period under review while interest income on loans and advances surged by 82.57 per cent to N195.26 billion.

FBHN’s interest income on T-Bills spiked by 62.0 per cent to N120.11 billion as at September 2017, while interest income on loans and advances were up 15.48 per cent to N222.93 billion the same period.

Analysts say lenders should look for other opportunities to grow income because higher yield is some form of opportunities for them to grab.

“What I expect them to do now that yields are falling is look for other means to grow top lending, said Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited.

Banks were lending when the economy was good but they stopped lending when the economy was bad, which explains their appetite for T-bills because of its attractive yield.

Data collated by BusinessDay has validated Ibrahim’s view that banks are making money whereas loans to a critical sector of the economy are ebbing.

The cumulative total loan and advances to customers of the 9 lenders dipped by 3.05 per cent to N11.85 trillion as at September 2017.

“Lending opportunities have been constrained by weak economic growth, continued soft oil prices and sluggish consumer demand. High cash reserve requirements (CRRs) on naira deposits, currently set at 22.5%, are also a constraint on lending,” said Fitch.

Bank’s Third Quarter Interest Expense

Source: Company Financials; BusinessDay Analysis

BALA AUGIE