How loan growth, others drove interest income across banks in 9 months

Nigerian banks resilient – Report By Vincent Nwanma & Abiodun Alade (Lagos) An across-the-board rise in loans and advances by Nigeria’s Tier-1 lenders in the first nine months of the year led to increased interest income earnings in the banks, their results for the period have revealed. Other sources of interest income growth were investments […]

• Nigerian banks resilient – Report

By Vincent Nwanma & Abiodun Alade (Lagos)

An across-the-board rise in loans and advances by Nigeria’s Tier-1 lenders in the first nine months of the year led to increased interest income earnings in the banks, their results for the period have revealed.

Other sources of interest income growth were investments in fixed-income securities, their results also indicated.

First Bank, United Bank for Africa, Guaranty Trust Bank, Access Bank and Zenith Bank Plc, all registered varying levels of growth in interest income for the period, compared with the same period a year ago.

Interest income is a measure of the lenders’ ability to generate revenue from the deployment of their funds at interest.

FBN Holding Co came up tops for the nine-month period, with an increase of 42.4 per cent in interest income to N370.36 billion.

The bank’s figures, in its results released last Thursday, show that all the contributory items to interest income rose, with the exception of loans to banks, which declined by 19.9% to N19.21bn.

Its income from loans and advances to customers grew by 47% which, according to Cordros, was supported by the HoldCo’s risk asset creation during the period, as shown by a 4.9% YTD rise in loans and advances to its customers to N3.60 trillion.

For FBN Holding Co, income from investment securities jumped by 54.9% to N80.45bn, shrugging off a decline of 4.6% in its investment securities down to N2.89trn.

Zenith recorded a 26.5% rise in interest income to N390.76bn, which was supported by higher income from investment securities (this rose by 30.0% to N122.97bn) and loans and advances to customers, which grew by 26.3% to N261.25bn.

At Access, interest income rose by 21.56% to N571.98bn, on the back of gains from loans and advances to customers, which rose by 34.3% to N350.71bn, and cash and cash balances that increased by 25.5% to N8.27bn).

Loans and advances to banks inched up by 8% to N12.38bn), while investment securities managed a 4.6% rise to N200.62bn.

Like other tier 1 lenders, the drivers for the expansion in ACCESSCORP’s interest income are attributed to risk asset creation as the loan and advances to customers grew by 11.1% YTD to N4.62trn and (2) an expansion in yields across the fixed-income market, Cordros said in a note.

At GTCO, interest income rose by 19.2% over the one-year period to N232.49bn, which was “propelled by all contributory lines,” according to Cordros Securities.

Income from loans and advances to customers rose by 13.2% to 159.87bn, while investment securities climbed by 26.1% to N62.93bn. Cash and balances with banks jumped by 151% to N9.67bn, as loans and advances to banks grew by 35.2% to N22.76 million.

For UBA, interest income jumped by 22% to N420bn, which was driven by increases in all the interest income lines.

But interest costs also spiked for the lenders, due to changes in the operating environment. At Access, for instance, interest expenses grew by 43.4% N291.45bn.

Cordros Securities blamed this surge on the cost incurred on funding the bank’s total liabilities, which rose by 16.2% year-to-date to N12.42trn during the period.

The cost of deposits from customers jumped 66.3% to N175.83bn, while deposits from financial institutions rose 31.3% to N63.50bn), with interest-bearing borrowings rising by 6.0% to N34.33bn.

The result of this is that for Access, net interest income rose by just 4.8% to N280.53bn.

Access also recorded higher gains from non-interest income, which rose by 50.3% to N296.65bn. This was spurred by an 11.6% gain on forex to N96.90bn, fees and commission (7.0% to N95.18bn), and investment securities, which rose to N78.44bn. Cumulatively, operating income rose by 23.0% to NGN524.22bn.

But at UBA, interest expenses rose by 20% to N137bn, driven by a 26% rise in the interest paid to 26%. Consequently, net interest income rose by 23% to N283bn.

Meanwhile the 2022 Afrinvest Banking Sector Report has shown that commercial banks recorded modest improvement in all regulatory indicators despite daunting economic challenges.

The report, presented by Deputy Group Managing Director, Afrinvest West Africa, Mr Victor Ndukauba, showed that the banks beat all the prudential guideline limits set by the Central Bank of Nigeria, showing resilience and strength during the year.

Its presentation was made at the launch of the 17th edition of the Nigerian Banking Sector Report and unveiling of Optimus, Afrinvest’s digital investment app, in Lagos.

The occasion also marked the announcement of Afrinvest’s new subsidiaries and expansion of its leadership team as well as the unveiling of Afrinvest’s refreshed logo.

The report’s assessment of CBN’s financial stability indicators showed that Industry Liquidity (Liquidity Ratio) and Non-Performing Loan ratios both improved by 130 basis points (up) and 75bps (down), respectively, to 42.6 per cent and 4.95 per cent.

The report said the improvement is expected to be sustained over the coming years.

It explained that the fiscal challenges presented by weak federal government earnings have contributed to the muddling of monetary policy and strong use of Cash Reserve Ratio (CRR) debits as a subtle strategy to compensate for the inflationary effect of ballooning overdraft to the government.

It insisted that in increasing its developmental financing role, especially in agriculture financing, the CBN risks crowding out banks and private sector financing, which is more effective in de-risking the sector and incentivising growth without moral hazards.

On exchange rate management, the report said CBN’s strategy (differentiated rates across market segments and capital control) failed the litmus test over the reviewed period, as anticipated in the 2021 report.

It said the value of the naira depreciated further by 5.6% and 23.2% to N436.50/$1.00 and N712.00$1.00 (on 19/09/2022) at the NAFEX window and parallel market, respectively. It stated that near-term improvement in the exchange rate is not in sight, given forex supply constraints due to the self-inflicted injuries in Nigeria’s oil and gas sector (the largest source of FX accretion).

On the economy, the report said that in 2021, the Nigerian economy recovered markedly from the pandemic-induced strain of the prior year.