Stories by Kayode Tokede
With significant increase in loans and advances to customers, 10 Deposit Money Banks (DMBs), within half year ended June 30, 2016 generated N758 billion interest income on loans and advances to customers.
This amount represents a decline of 2.7 per cent or N20.8 billion compared to N778.5 billion interest income generated by the same banks in the same period of 2015.
The same DMBs between January and June this year, granted about N14.48 trillion loans and advances to customers, 21.5per cent above N11.9 trillion granted in full year ended December 31, 2015
The 10 considered by Nigerian NewsDirect are Eco Transnational Bank Plc, Zenith Bank Plc, First Bank of Nigeria Holdings Plc (FBN), Guaranty Trust Bank Plc, Access Bank Plc and United Bank for Africa.
Others are Diamond Bank Plc, First City Monument Bank Group Plc (FCMB), Union Bank of Nigeria Plc and Sterling Bank Plc.
The Central Bank of Nigeria (CBN) around March 2016 tightened liquidity, increasing interest rate to 12 per cent from 11 per cent and Cash Reserve Requirement was increased from 20 per cent to 22.5 per cent.
According to Nigerian NewsDirect Investigation, Interest rate within the first half of 2016 maintained a double digit figure, with an average prime lending rate of 16.13 per cent and maximum lending rate of 26.73 per cent.
Thereafter, the apex banking regulatory body in July increased interest rate from 12 per cent to 14 per cent, forcing banks to hike rate to a maximum lending of 31 per cent.
Zenith Bank Plc generated the highest interest income amount on loans and advances to customers for the half year ended June 2016 under review.
The bank interest income for the period under review rose by 2.1 per cent to N132 billion in June 2016 from N129.3 billion recorded in June 2015.
Followed closely is ETI that recorded a decline of two per cent on interest income from N132.5 billion to N129.8 billion in June 2016 while FBN Holdings Plc interest income also dropped by nearly 14 per cent to N121.25 billion as against N140.8 billion recorded in prior half year ended June 2015.
Although FBN Holdings net interest income dropped by five per cent to N126.1 billion from N132.7 billion in June 2015, the financial institution explained that reduction in the average volume of loans to customers was due to deliberate measures on moderating lending activities and lower yields from interest earning assets relative to the previous period.
The holdings company explained further that, “
decline in net interest income however, was in part moderated by a 41 per cent reduction in interest expense to N43.2 billion N73.1 billion from June 2015 driven primarily by a 47 per cent reduction in interest on deposits from customers to N33.1 billion as against N62.5 billion June 2015, coupled with 24.6 per cent decrease in interest on borrowings.”
GTBank generated N87 billion interest income on loan and advances to customers, 7.3 per cent above N81.33 billion in half year of 2015 while UBA interest income dropped by 14.2 per cent to N64.7 billion from N75 billion.
The management of GTBank had explained that the Interest income decline was largely due to decrease in assets yield on the back of single digit yield on Fixed Income Securities
“Also, slow down in the level of economic activity in the first 6 months of the year hindered quality risk assets creation thereby robbing the Bank of needed Interest Income,” the bank explained.
Access Bank Plc interest income on loan and advances to customers rose by 19.3 per cent to N76 billion in June 2015 from N91.1 billion in June 2016.
The bank’s net Interest Income rose by 14 per cent y/y to N112.3 billion in half year 2016 from ¦ 98.9 billion in half year 2015; benefitting from steady income growth from the bank’s core business.
Furthermore, Diamond Bank Plc recorded N44.9 billion interest income on loan and advances to customers from N59.9 billion prior half year while Union Bank of Nigeria Plc generated
FCMB Group Plc generated N26.1 billion interest income on loans and advances to customers, 6.1 per cent above N24.6 billion recorded in prior half year of 2016.
Union Bank of Nigeria and Sterling Bank recorded a growth of seven per cent and 0.6 per cent on interest income on loan and advances to customers to N30.45 billion and N29.98 billion in June 2016, respectively.
Finance analysts had explained to our correspondent that banking industry recorded weaker operations in the period under review attributable to macro economy challenges facing the country.
With the hike in interest rate to 14 per cent, the Chief Executive Officer, Enterprise Stockbrokers Limited, Mr. Rotimi Fakayejo, had expressed that banks lending to the public would drop while funding to Government bonds and Treasury- Bills tend to benefit from the increase in interest rate.
According to him, with the foreign exchange rate and depilated infrastructure, doing business in Nigeria would be tough.
“It automatically means that banks will lend less to depositors, invest in government bonds and Treasury-bills. CBN should have focused on local investors rather than increasing interest rate and devalue Naira to attract foreign investors,” he explained.