Five Banks’ Interest Income Drops To N376bn, Experts Blame CBN Cash Reserve Policy
The combined net interest income of five publicly-quoted commercial banks has declined by N48.69bn in the last one year, according to the financial statements of the lenders analysed by our correspondent.
Specifically, the five banks’ net interest income fell by 11.45 per cent from N425bn in September 2020 to N376bn in the same period of 2021.
The revenue of commercial banks consists of net interest income and non-interest income.
The net-interest income is the spread earned after interest-bearing liabilities are deducted from the revenue generated from a bank’s interest-bearing assets.
Meanwhile, 11 banks reported their earnings for the nine-month period between January and September on the issuers’ portal of the Nigerian Exchange Limited.
The 11 lenders generated N1.2tn in earnings in September this year, compared to N1.11tn made in the corresponding period of last year. This represents a 7.98 per cent increase Year-on-Year.
However, six of the banks recorded increase in their net interest income, while the remaining five witnessed reduction in the net interest income.
According to the financial reports, the lenders which recorded increases are: Access Bank Plc, United Bank for Africa Plc, Unity Bank Plc, Sterling Bank, Wema Bank and Zenith Bank Plc.
The reduction in net interest income was recorded by Guaranty Trust Holding Company Plc, First City Monument Bank, Fidelity Bank Plc, Union Bank Plc and Stanbic Bank. Financial analysts, who spoke with The PUNCH on Saturday, attributed the development to regulatory headwinds among others reasons.
Access Bank Plc’s net interest income rose to N267.73bn in the third quarter of this year from N196.27bn recorded in the corresponding period of last year.
Similarly, UBA grew its net interest income from N36.01bn recorded in September 2020 to N229.27bn in September 2021.
Unity Bank grew its net interest income from N12.67bn recorded last year to N14.63bn this year; Sterling Bank’s net interest income rose from N44.99bn in the Q3 of last year to N47.73bn in the same period of this year; Wema Bank recorded growth in its net interest income from N20.1bn last year to N28.45bn this year; and Zenith Bank grew its net interest income from N225.18bn last September to N234.75bn this September.
However, FCMB’s net interest income dropped from N68.05bn recorded last September to N65.39bn in this September, while Fidelity Bank’s net interest income fell from N75bn in the third quarter of last year to N64.96bn in the corresponding period of this year.
GTCO’s net interest income fell from N189.74bn to N162.94bn within the period under analysis, while Stanbic IBTC also recorded a drop from N56.26bn last year to N54bn this year. Union Bank recorded a drop from N36.01bn last year to N29.08bn this year.
FBN Holdings Plc has yet to release its unaudited financial statements for the nine months ended September 2021 as of the time of filing this report.
Reacting on the reason some of the lenders recorded reduction in their net interest income, the Head, Investment Banking, Coronation Merchant Bank, Suru Daniels, said the interest rate environment in 2021 experienced significant yield volatility, compared to 2020.
“A lack of liquidity caused by the discretionary Cash Reserve Ratios applied by the Central Bank of Nigeria has reduced the level of activity or participation that banks could have in bond auctions and open market operations,” he noted.
The Head, Retail Investment, Investment Management Group at Chapel Hill Denham, Ayodeji Ebo, also said the CBN’s CRR debits as well as the lower interest rate and yield environments resulted in shrinking net interest income for banks.
“The CRR debits have continued and they only get 0.5 per cent from special bills issued by the CBN. They don’t have as much liquidity (as they used to have) and the yield environment is not that attractive,” Ebo added.
He also pointed out that some banks did not increase loans to their customers, adding that the CBN requirements had led banks to carry out some forbearance.
Experts said banks recorded increase in interest on liabilities as expenses on current accounts, term deposits, and borrowed funds climbed. FCMB, Fidelity Bank and GTCO recorded significant increases in their interest expenses on term deposits.
“Another thing to consider is the cost of funds for the banks which is also rising given the challenge from the digital banks drawing deposits away from commercial banks,” the Coronation’s lead investment banker, Daniels, noted.
“The CBN penalises the banks if they don’t have adequate loan to deposit ratio. Also, banks are forced to give out loans at a reduced rate because of competition. You can see there is a double trouble,” he added.
Meanwhile, some analysts are of the opinion that the rise of fintechs and the launch of the eNaira by the CBN pose significant threats to the future earnings of commercial banks.
The Chief Executive Officer of APT Securities Limited, Mallam Garba Shinkafi, said competition was becoming very tough for banks, noting that the equity markets had been reflecting the poor performance of some of banks.
He said, “There is massive intervention by the CBN and some borrowers have chosen to go for the CBN intervention because it is cheaper. So, the CBN is competing where the banks are supposed to be major players. This has reflected in their income.”
He added, “Now, MTN Nigeria Plc and Airtel Africa Plc are getting approval in principle and what that means is they will play as fintech and compete with the banks. This will further limit banks to the traditional banking model-lending. They have to look for borrowers and become innovative in the non-interest income segment.”