The quest to amass a sizeable portion of consumer funds in a highly competitive financial environment is becoming expensive for Nigerian banking institutions, as a total of 11 banks spent N555 billion in servicing customers’ accounts in a nine-month period ended September 30, 2018, investigations by National Daily has revealed.
The money spent is 19 percent higher than N468 billion spent by the same banks in servicing customers current, saving and time deposits accounts in the same period of 2017.
For the period under review, considered banks reported an increase in deposits from customers, as most funds were channelled by customers on investment in government Treasury Bills ( T-Bills) despite the low yield.
Zenith Bank Plc, however, reported 57 percent drop on interest expenses paid on customers’ deposits, of the 11 banks reviewed as a result of the low yield on government securities while the remaining 10 banks reported an increase.
Specifically, Zenith Bank reported N54.05 billion interest expenses incurred on customers deposit in nine months of 2018 as against N127.01 billion reported in nine months of 2017.
Finance experts attributed the growth to payment on fixed deposit expenses of customers.
David Adonri, managing director, Highcap Securities Limited was of the opinion that most of the Tier- 1 banks that borrowed foreign loans had to pay interest and it affected their interest expenses.
He said, “the drop in the foreign exchange market also increased their interest expenses generally,” adding that in a move to encourage deposit, banks increased interest expenses on fixed deposit to attract customers and boost their working capital,” he added.
The Central Bank of Nigeria (CBN) and federal government borrowing interest on T-Bills continued to attract investors’ interest, forcing banks to respond with increased interest on deposit to sustain liquidity position, according to Johnson Chukwu, the managing director, Cowry Assets Management.
Further findings by National Daily revealed that other Tier-1 banks reported double-digit growth on interest expenses on customers deposit while most of the Tier-2 banks reported marginal increase.
For instance, United Bank for Africa Plc (UBA) reported 44 percent increase on interest expenses on customers deposit to N79.11 billion in nine months of 2018 from N54.88 billion reported in nine months of 2017.
Guaranty Trust Bank Plc (GTBank) reported N53.9 billion interest expenses on customers deposit from N44.14 billion reported in nine months of 2018 while FBN Holdings reported 19 percent increase on interest expenses paid on serving customers deposit to N83.04 billion from N69.89 billion reported in nine months of 2018.
Another Tier-1 bank, Ecobank Transnational Incorporated (ETI) reported N86.5 billion in interest expenses on customers deposit, 16 per cent above N74.56 billion reported in nine months of 2017.
In addition, Access Bank Plc reported N94.74 billion in interest expenses on customers deposit in nine months of 2018 from N79.9 billion reported in nine months of 2017.
However, Diamond Bank, a Tier-2 bank reported 42 percent increase on interest expenses on customers deposit to N28.2 billion from N19.88 billion while Wema Bank’s interest expenses on customers deposit moved from N18.9 billion to N20.25 billion.
Union Bank’s expenses on customers deposit closed nine months of 2018 at N35.23 billion from N32.8 billion in nine months of 2017.
Furthermore, Fidelity Bank Plc reported one per cent increase on interest expenses on customers deposit to N45.4 billion from N44.88 billion while FCMB Group Plc announced two per cent on interest expenses on customers deposit from N28.94 billion in nine months of 2018 to N28.44 billion reported in nine months of 2017.
Analysts at InvestmentOne had expressed that the second half of the 2018 financial year will see loan growth muted. “We expect a slight uptick in fixed income yields, which would further shift the focus of banks from expanding their loan books to investing more in fixed income securities so as to limit their exposure to credit risk even amidst a potential uptick in system liquidity as electioneering comes into play.”