MPR: Tier-2 Banks Spent N413.5bn on Customers Deposit, Borrowings

…generate N225.9bn profit

Kayode Tokede

Following aggressive inflation targeting that lead to consistent hike in Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), which culminated at 16.5 per cent in the 2022 financial year, a total of six Tier-2 banks spent a whopping sum of N413.5 billion on customer deposits and local/foreign borrowings during the year.

This represents an increase of 32.34 per cent over the N312.43 billion reported in the 2021 financial year.

The six banks are: Fidelity Bank Plc, Unity Bank Plc, Wema Bank Plc, FCMB Group Plc, Stanbic IBTC Holdings, and Sterling Bank Plc.

Banks were forced to increase interest on customers’ deposit/borrowings in a move to attract more deposits, generate interest income and boost profit.

The CBN Governor, Mr. Godwin Emefiele had admitted that the hike in MPR would increase cost of borrowing, especially in non-priority sectors of the economy.

Emefiele, however, added that lending to key priority sectors, which had been identified to boost growth and generate employment, would remain at a single-digit interest rate of nine per cent.

He pointed out that the decision to raise interest rate was the last resort and a difficult one for the MPC, which had been crafting policies to stimulate economic growth as well as achieve financial stability.

Since the MPR was moved to 16.5 per cent by the MPC from 11.5 per cent, interest rate on 12-month deposit hit 8.22 per cent in 2022 from 6.79 per cent it closed in 2021.

Also, interest on one-month savings deposit also increased from 3.73 per cent to 8.15 per cent.

The breakdown by THISDAY revealed that Wema Bank reported N53.23 billion interest expenses on customers’ deposit/ borrowing, representing an increase of 52.4 per cent from N34.92 billion in 2021, while FCMB group announced N97.58 billion interest expenses in 2022, 37.19 per cent increase from N71.13 billion in 2021.

As Stanbic IBTC Holdings reported N39.55 billion interest expenses to N29.38 billion in 2021, Fidelity Bank announced N141.62 billion interest expenses in 2022, representing an increase of 30.3 per cent from N108.69 billion reported in 2021.  

In addition, Unity Bank’s interest expenses moved to N29.64 billion in 2022, an increase of 28.2 per cent from N23.13 billion in 2021, while Sterling Bank posted N51.87 billion interest expenses on customers’ deposit/borrowings in 2022, representing a growth of nearly 15 per cent when compared to N45.19 billion in 2021.

As interest on deposit/borrowing increased, the hike in MPR impacted on the maximum lending rate that closed 2022 at 29.13 per cent from 27.58 per cent in 2021.

These banks leveraged on the hike to grow interest income in 2022 as the six Tier-2 banks generated a total of N1.01 trillion as against N756.6 billion in 2021. 

A Tier-2 top executive explained to THISDAY that MPR hike due to a steady increase in the inflation rate boosted banks’ interest income in the period under review.

He noted that banks increased lending over margins, stressing that consumers, salary earners and traders increased borrowing from the banks that eventually translated into an increase in interest income accrual.

A group of analysts at Vetiva research in a report had anticipated stronger interest income earnings for the banks in, as yields continue to advance.

“Furthermore, the higher yields will also drive increased trading activity, supporting trading volumes,” they explained.

In the period under review, Fidelity Bank out of the six banks generated the highest interest income by percentage, followed by Wema Bank.

Fidelity Bank generated a total of N294.44 billion interest income in 2022, an increase of 44.6 per cent from N203.56 billion generated in 2022 as Wema Bank announced nearly 40per cent increase in interest income to N104.39billion in 2022 from N74.8billion reported in 2021.

However, the six banks generated a whopping sum of N225.9billion profit before tax in 2022, representing an increase of 44 per cent from N156.97billion in 2021.

Unity Bank was the only bank that reported drop in profit before tax to N1.47 billion in 2022 from N3.33 billion reported in 2022. The bank’s 56 per cent drop in profit before tax caused 28 per cent increase in interest and similar expenses, among others.

FCMB Group announced 63.3 per cent increase in profit before tax to N37.11billion in 2022 from N22.72 billion in 2022, while Stanbic IBTC Holdings announced N100.6billion profit before tax in 2022 unaudited financial statement from N66billion in 2021.

In addition, Sterling Bank reported 38.6 per cent increase in profit before tax to N20.07 billion and Fidelity bank announced N52.06 billion in 2022, a growth of 37 per cent from N38.07 billion in 2021, and Wema bank announced N14.59 billion profit before tax in 2022, an increase of 18 per cent from N12.38 billion in 2021.

In a chat with THISDAY, Adnori noted that listed banks’ performance over the years has been the most consistent sector on the NGX.

According to him, “The current unaudited results are impressive despite the challenging operating environments they faced in 2022.  We have seen improvement in Tier-2 banks’ performance lately and we expect robust dividend payout when it is announced.”