Customers of four tier-1 and five tier-2 banks in Nigeria paid a total of N653.94 billion as interest on loans and advances at the end of the first quarter of 2023, figures extracted from the first quarter unaudited financial statements of the nine deposit money banks have shown.
This compares to N455.14 billion interest paid by customers of the same banks as of March 2022, indicating that Q1 2023 interest income on loans and advances was higher by 44 percent.
The increase in banks’ interest income was consequent upon the actions of the Central Bank of Nigeria (CBN), which raised the benchmark interest rate, Monetary Policy Rate (MPR) from 11.5 percent to 18 percent, in the last one year.
According to CBN, the decision to hike MPR was a policy response to high inflationary pressures in the country. The high interest income of the banks was also boosted by a number of other initiatives introduced by them during the first quarter of this year.
Loans and advances to customers are one of the financial instruments available to deposit money banks for generating interest income. Other instruments include placement with banks, government bonds, investment securities, commercial papers, treasury bills, among others.
The tier one banks under the coverage of this analysis are Access Bank, Guaranty Trust Bank, United Bank for Africa (UBA) and Zenith Bank. The tier two banks are Union Bank, Stanbic IBTC, Fidelity, Wema and FCMB. Other banks were not included in the analysis due to the non-availability of their first quarter unaudited financial statements.
The total interest income generated by the nine aforementioned banks amounted to N1.017 trillion as of March 2023, compared to N692.44 billion interest income in the corresponding period of 2022.
As many as there are assets for generating interest income, loans and advances to customers accounted for the bulk of the income banks generated through interest. As of March 2023, interest income from loans and advances to customers accounted for 64.3 percent of the total interest income of the nine banks. As of Q1 2022, the ratio was 65.7 percent.
What this means is that, on the average, the nine banks generated N64 as interest income from loans and advances to customers in Q1 2023 out of every N100 generated through interest. As of Q1 2022, it was N66 out of every N100 generated through interest on loans and advances.
Mudassir Amray, MD/CEO, and Joe Mbulu, Chief Financial Officer, both of Union Bank of Nigeria, attributed the current performance of banks to high inflation and initiatives by banks while appraising their first quarter 2023 financial results.
Amray said: “Q1 saw increased New-To-Bank customers across different regions. We entered strategic partnerships to deliver value to our clients.
“I am thrilled about the initiatives that will help us be more productive and exceed our customers’ expectations. We will relaunch products to boost customer adoption, intensify our cost optimisation programme and exploit the gains of strategic partnerships we have started to forge.”
Mbulu, Union Bank’s chief financial officer said: “We are delighted with our financial performance because it came on the backdrop of a slow first quarter, occasioned by the general elections, the pushback of the naira redesign policy and persistent macroeconomic headwinds.
“Net operating income after impairments increased by 34% to ₦32.65 billion from ₦24.32 billion in Q1 2022 on the back of deepening revenue from our core business – corporate, SME and retail; whilst operating expenses increased by 10% to ₦19.83 billion against ₦17.97 billion in Q1 2022, majorly due to the high inflationary environment, increased power cost and increased in non-discretionary regulatory cost.”
On a bank-by-bank analysis, Access Bank realised N254.22 billion as interest income, out of which N149.09 billion, or 58.6 percent of the total interest income earned, came in through interest charged on loans and advances to customers.
In Q1 2022, Access Bank made N173.69 billion as total interest income, and N91.68 billion or 52.8 percent was from interest charged on loans and advances to customers in that quarter.
UBA generated N191.87 billion as total interest income during the first quarter of 2023, from which N96.05 billion or 50.1 percent was interest earned on loans and advances to customers. As of March 2022, the bank generated N125.07 billion as total interest income whereas N70.34 billion was the interest income earned through loans and advances to customers.
Zenith Bank generated N191.63 billion as total interest income in Q1, out of which N123.87 billion was interest earned through loans and advances to customers. In Q1 2022, it was N87.78 billion that the bank generated from loans and advances to customers, out of N126.38 billion that came into its coffers as its total interest income.
GT Bank made N104.08 billion as total interest income during the first three months of 2023, from which N63.59 billion or 61.1 percent was the interest income on loans and advances to customers. In Q1 2022, the bank realised N70.64 billion as total interest income out of which N50.88 billion was from loans and advances to customers.
Fidelity Bank led other tier two banks in terms of what it generated during the quarter as total interest income, which amounted to N86 billion out of which N73.91 billon or 85.9 percent came from loans and advances to customers.
As of Q1 2022, Fidelity Bank realised N60.37 billion as the total interest income, from which N48.65 billion or 80.6 percent was from loans and advances to customers.
