Access Holdings, ETI, Others See 52% Increase in Interest Expense as Customers’ Deposit Soar
Nigeria’s tier 1 & tier 2 Deposit Money Bank (DMBs) saw a combined 52 per cent increase in interest expense on customers’ deposits to N372.45 billion in the first quarter (Q1) ended March 31, 2022, from N245.53 billion reported in Q1 2021.
The tier 1 DMBS are; Access Holdings Plc, Ecobank Transnational Incorporated (ETI), United Bank for Africa Plc (UBA), Zenith Bank Plc, Guaranty Trust Holding Plc (GTCO) and FBN Holdings Plc.
Tier 2 DMBS are; Fidelity Bank Plc, Unity Bank Plc, Union Bank for Nigeria Plc, Wema Bank Plc, Sterling Bank Plc, FCMB Group and Stanbic IBTC Holdings Plc.
The Central Bank of Nigeria (CBN) ‘money market indicators’ data showed a 0.03 basis points increase in saving deposits to 1.28 per cent in March 2022 from 1.25 per cent reported in January 2022.
According to the apex bank, interest on one-month deposit in Year-on-Year performance moved to 3.33 per cent as of March 31, 2022, from 2.06 per cent reported in March 2021, while interest on three-month deposit gained 1.36 basis points to 4.41 per cent as of March 31, 2022, from 3.05 per cent reported in March 2021.
Extracts from unaudited financial results and accounts of listed DMBs on the Nigerian Exchange Limited (NGX) revealed that Access Holdings with its expansion in over 10 African countries, the UK and UAE with three representative offices in China, India and Lebanon paid the highest interest on customers deposit in the period under review.
Access Holdings reported a 73.22 per cent increase in interest expenses to N86.33billion in Q1 2022 from N49.84billion in Q1 2021.
This represents an increase of 73 per cent, driven primarily by interest expenses paid to customers with savings accounts. Interest expenses on saving accounts customers moved to N53.84 billion in Q1 2022 from N21.03 billion reported in Q1 2021.
Meanwhile, Access Holdings grew its deposit to N7.49 trillion as of March 31, 2022, representing an increase of 7.5 per cent from N6.95 trillion reported in the 2021 full-year results.
ETI’s interest expenses also grew by 29.8 per cent to N56.83 billion in Q1 2022 from N43.76 billion in Q1 2021, while UBA reported a 17.5 per cent growth in its interest expenses to N40.21 billion in Q1 2022 from N34.21 billion reported in Q1 2021.
Interestedly, Fidelity Bank and Wema Bank grew interest expenses on customer’s deposits by 124.29 per cent and 95.23 per cent respectively in Q1 2022, the highest percentage reported by the 13 banks, according to THISDAY findings.
As Fidelity Bank reported N31.99billion interest expenses on deposits from customers in Q1 2022 to N14.27billion in Q1 2021, Wema Bank reported N14.95billion interest expenses on deposits from customers in Q1 2022 from N7.66billion reported in Q1 2021.
Analysts attributed the growth to an increase in deposits from customers on the heels of CBN’s 65 per cent Loan-to-Deposit (LDR) policy and interest payable by DMBs on deposits.
The vice president, of Highcap Securities Limited, Mr. David Adnori attributed the growth to aggressive deposits from banks’ customers amid meeting CBN’s 65 per cent LDR policy and interest rate DMBs are paying for savings and term depositors.
According to him, “One major factor that triggered the increase of interest on deposit was growth recorded by DMBs in customers deposits.”
The President of the Association of the Capital Market Academics in Nigeria (ACMAN), Professor Uche Uwaleke, had said the hike in deposit rate is meant to attract deposits and let DMBs remain competitive.
“It is the competition that is pushing up interest on deposits in the banking sector,” he added.
In his reaction, Head, Financial institutions, Agusto & Co, Mr. Ayokunle Olubunmi said, “The growth recorded by banks on their interest expenses showed a reflection of what is happening in the economy, coupled with the rising inflation rate.
“Banks customers are asking for higher interest and for banks to keep those funds, they had to pay higher interest rates. The inflation rate has appreciated recently and prices of goods & services have increased significantly. If that is the case, it is not out of place for investors to ask for the higher interest rate on their savings/term deposit they keep in the bank.”
He noted that demands by bank customers forced CBN to increase its Monetary Policy Rate (MPR) to 13 per cent in May from 11.5 percent it was over two years.
The apex bank had reacted to rising inflation in Nigeria, which stands at 15.92 per cent as of Q1 2022.
The CBN’s action is consistent with those of the central banks of leading economies globally such as the US and the UK. The Federal Reserve increased interest rates in the US to 0.75per cent – one per cent, the highest in the past two decades.
Also, the Bank of England raised its interest rate for the fourth consecutive time since December to one per cent.
These actions are coming on the heels of rising prices of goods and energy globally.
Adnori added that “Most of the time, when the CBN bank feels there is too much money in supply, it increases the interest rate to encourage people to save. Ideally, an increase in interest rate by the central bank should sound like good news to saving account holders or fixed deposit account holders. However, that is not the case for Nigerian savers.
“With an inflation rate of 15.92 per cent in Q1 2022, nothing much will come out from savings. Although it will raise the amount in interest bank savers currently get, it won’t do much in the real world as inflation eats up a sizeable chunk of savings. “For fixed deposit holders, there is already a fixed rate of interest which does not change. However, for new fixed deposit accounts, the interest rate will be higher than what is previously available.”