By Kayode Tokede, Lagos –
A total of 11 Tier I and Tier II Commercial Banks operating in Nigeria have seen interest expenses increased significantly pulled by tight monetary environment, resulting in elevated cost of funding despite sluggish customers’ deposits.
Finance experts attributed the growth in interest expenses to foreign debt payment expenses and payment on fixed deposit expenses of customers.
Managing director, Highcap Securities Limited, Mr. David Adnori, explained to LEDERSHIP during the weekend that financial institutions reported hike in interest expenses over foreign loans payment, stressing
“Most of the Tier I banks that borrowed foreign loans had to pay interest and it affected their interest expenses. Besides, drop in the foreign exchange market also increased their interest expenses.
“In a move to encourage deposit, banks increased interest expenses on fixed deposit to attract customers and boost their working capital.”
Also commenting, Managing Director, Cowry Assets Management Plc, Mr. Johnson Chukwu, said, the Central Bank of Nigeria (CBN) and Federal government borrowing interest on Treasury Bills have continued to attract investors interest, forcing banks to respond with increased interest on deposit to sustain liquidity position.
According to LEADERSHIP investigation, total interest expenses of 11 commercial banks increased by 62 per cent or N232 billion to N604.5 billion as at half year ended June 30, 2017 as against N372.2 billion reported in half year ended June 30, 2016.
Seven out of eight Systematic Important Banks (SIBs) of Central Bank of Nigeria (CBN), reported spike in interest expenses while their customers deposit slumped.
The seven SIBs contributed nearly 81 per cent of the N604.5 billion interest expenses with Zenith Bank Plc reporting the highest interest expenses, followed by Access Bank Plc.
Zenith Bank Plc recorded 126.7 per cent increase in interest expenses to N123.3 billion in H1 2017 as against N54.4 billion in H1 2016.
The breakdown in Zenith Bank interest expenses revealed that expenses on Current accounts rose by 167 per cent to N3.8 billion from N1.4 billion while expenses on Savings accounts increased by 21 per cent to N7.95 billion as against N6.59 billion in H1 2016.
Also, borrowed funds expenses added 15 per cent from N16.5billion in H1 2016 to N18.88 billion in H1 2017 while time deposits significantly rose by 210 per cent to N92 billion from N29.87 billion in H1 2016.
Zenith Bank’s customers’ deposit thus dropped by 0.29 per cent to N2.97 trillion as at June 30, 2017.
Interest expenses of Access Bank increased by 79.9 per cent, to N788.86 billion in H1 2017 from N43.8 billion in H1 2016.
According to Access Bank, deposit from financial institutions expenses moved to N7.28 billion in H1 2017, 107.9 per cent overN3.5 billion reported in H1 2016.
Interest expenses on customers deposit rose by 63 per cent to N51.2 billion in H1 2017 from N31.27 billion while interest expenses on debt securities issued tripled to N18.1 billion from N6.4 billion.
The bank revealed that deposits are majorly term deposit with an average interest rate and tenor of approximately 2.10 per cent and 6-month for directors and 6.27 per cent and 3-month for subsidiaries.
Union Bank of Nigeria reported 98 per cent increase in interest expenses to N26.5 billion from N13.4 billion as expenses on customers deposit hit N21 billion from N9.79 billion while ‘Other borrowed funds’ gained 52 per cent from N3.6 billion to N5.5 billion.
Ecobank Transnational Incorporated’s interest expenses increased by 65 per cent to N99.2billion from N59.9billion, driven by 162 per cent increase in ‘other borrowed funds’ to N32.36 billion from N12.3 billion in H1 2017.
First Bank of Nigeria Holdings’ interest expenses rallied by 58.2 per cent to N68.2 billion from N43.15 billion while Diamond Bank’s interest expenses Diamond Bank gained 53.9 per cent to N27.39 billion from N17.8 billion.
The other two SIBs, Guaranty Trust Bank Plc (GTBank) and United Bank for Africa Plc reported 18.5 per cent and 23.8 per cent increase in interest expenses to N36 billion and N53.7billion in the half year period under review.
GTBank in a statement said, “In spite of stiff competition for customers’ deposits and exchange rate protection during the period, interest expense was only up by 18.5 per cent and Interest expense as a percentage of interest income closed at 21.9 per cent.”
Other Tier II banks, Fidelity Bank Plc interest expenses rose by 48 per cent to N38.2 per cent from N25.8 billion in H1 2017.
Sterling Bank Plc and First City Monument (FCMB) interest expenses increased by 44.6 per cent and 24.4 per cent respectively.