As the monetary policy and macroeconomic environment evolve under the current Federal Government’s fiscal reforms, there are indications that the banking industry is now battling with cost pressures.
The banks are recording rising operating expenses (OPEX) likely driven by inflationary pressures in the economy while high interest rate monetary policy environment pushes up the banks’ interest expenses.
The combined effect is already manifesting in the financial results of leading banks in 2025 with unaudited first quarter (Q1’25) results of leading banks in Nigeria as approved by Central Bank of Nigeria, CBN, last week showing negative performance in their various cost metrics.
Surprisingly, most of the big banks are recording rising cost of funds amidst rising profits from the high interest rate regime.
At the center of the rising cost of funds and interest rates is the inflation targeting policy of the CBN which drove a sustained increase in the Monetary Policy Rate, MPR, the benchmark interest rate determined by the apex bank from time to time.
Presently, the MPR is at 27.5 percent, almost double what it was two years ago, after recording steady and rapid markups.
Consequently, all other money market rates have received massive upswings which have now appeared to be hurting the banks.
Also, under the collateral inflationary pressures, operating expenses have seen significant rises across all the banks in the current financial year with all the banks putting up huge breaks on spending.
This reflects the general challenge confronting all businesses in Nigeria with cost of doing business at unprecedentedly high pitch, and in many cases, too high to enable businesses make profit or even survive.
Though some of the banks tried to douse the pressure with multiplicity of measures, their overall cost profile has already impacted adversely on their profitability metrics as seen in the just approved Q1’25 financial results.
Meanwhile, profit levels are now rising at slower pace while some of the banks have already started recording a decline in bottomline, largely due to the cost pressures.
First Bank has recorded significant increases in operating expenses (OPEX) which offsets the gains they made from lower impairment charges, and which further pressured the Group’s net income.
Also the Group’s cost-to-income ratio (CIR) climbed to 52.3%, though most of the cost drivers in this instance were none core banking activities. They are reflecting higher personnel costs, regulatory levies (AMCON and deposit insurance).
In the United Bank for Africa, UBA, funding costs rose sharply as cost of funds increased to 3.7% from 2.8%, a development which narrowed net interest margin (NIM) to 6.6%, down from 8.0% in the prior period.
Moreover, UBA endured cost pressures emerging in provisions for bad loans as well as in operating expenses. Impairment charges quadrupled to N14.2 billion, pushing the cost of risk higher to 0.7%, though still at comfortable level.
Meanwhile, OPEX at UBA rose 12.3% to N245.8 billion, indicating a cost-to-income ratio of 52.9%, quite elevated.
For Guaranty Trust Bank Group, the cost pressure shoots up in the 23.2% rise in OPEX which hit N122.7 billion and this combined with the 29% moderation in operating income to propel the cost-to-income ratio (CIR) massively higher to 28.1% as against 16.0% in the corresponding period of last year (Q1’24).
For Zenith Bank, the headache is coming from the operating expenses (OPEX) end of the cost range. The OPEX rose by 38.9% YoY, pushing the cost-to-income ratio (CIR) up to 41.2% as against 34.9% in Q1’24, mainly due to higher personnel costs, regulatory levies, and IT-related expenses.
The Access Bank Group recorded massive pressures from interest expense which rose by 71.3% YoY, with operating expenses rising by 25.0% YoY, and these developments dampened bottom-line growth, resulting in a modest 14.7% YoY increase in Profit After Tax, PAT, to N182.7 billion
Moreover, despite the strong growth of +36.3% YoY to N980.7 billion in interest income, the significant jump in interest expense at N760.5 billion, likely reflecting the impact of a high-cost USD deposits, led to a 20.1% contraction in net interest income (NII).
Accordingly, the net interest margin (NIM) compressed massively to 3.6% from 6.5% in the corresponding period last year.
Meanwhile, another operator outside the tier-1 category, Fidelity Bank Plc, appears to be weathering the storm better, recording a slower 28.6% YoY uptick in interest expense.
Profit grows
Apart from First Bank Group, all other banks so far have demonstrated resilience in bottomline with significant growth in Profit After Tax, PAT. Also earnings have been resilient.
First Bank recorded a 17.9% YoY decline in PAT to N167.4 billion, in its unaudited Q1’25 results. The performance was primarily weighed down by a sharp contraction in noninterest revenue (NIR), which offset the strong growth recorded in net-interest income (NII), limiting the expansion of gross earnings.
UBA recorded a 33.1% YoY growth in PAT to N189.8 billion in Q1’25.
This result also highlight a 37.3% expansion in gross earnings to N712.2 billion, which cascaded to support bottom-line expansion, offsetting cost pressures from higher interest expense, impairments, and operating expenses (OPEX).
Access Bank reported a modest 14.7% YoY increase in PAT to N182.7 billion at the backdrop of a 42.7% expansion in gross earnings to N1.4 trillion, supported by robust growth in interest income and non-interest revenue (NIR).
Zenith Bank reported a 20.7% YoY increase in profit after tax (PAT) to N311.8 billion, which was supported by the 92.9% YoY surge in net interest income (NII) and the 37.0% decline in tax expenses.
Fidelity Bank, the bride of the early results pack, which belongs in the tier-2 category of banks, recorded an impressive 290% YoY increase in profit after tax (PAT) to N91.1 billion.
This stellar performance was primarily driven by a strong 65.4% YoY rise in interest income, which accounted for 88.3% of gross earnings at N318.5 billion as against N190.6 billion in Q1’24.
Overall, the bank’s performance translated into notable gains in profitability metrics, with return on average assets (ROAA) rising to 3.8% from 1.9% in Q1’24 and return on average equity (ROAE) increasing to 39.8% from 27.8% in Q1’24.
Strengths, weaknesses
Though the early results pack has indicated cost side headwinds, the visible resilience is seen in many other performance metrics.
For instance, in First Bank Group, Net Interest Income, NII rose sharply by 61.0% YoY to N365.2 billion, driven by the favourable yield environment, which supported the expansion in net-interest margin (NIM) to 7.9% compared to full year 2024 level of 6.9%.
On the asset quality front, First Bank’s cost-of-risk (CoR) improved to 1.7% (compared to 2.2% in Q1’24). This is supported by the 1.31% YoY decline in impairment charges on loans and advances, despite an 11.1% YoY increase in gross loans to N9.7 trillion in Q1’25.
However, non-interest revenue (NIR) fell by 60.0% YoY to N104.0 billion, largely due to a fair value loss of N57.1 billion, a reversal from the N288.0 billion gain recorded in Q1’24.
For UBA the core earnings have continued to sustain the bank’s strong growth. There is a robust growth in interest income at 36.1% YoY reaching N599.8 billion in Q1’25 as the Group continued to capitalise on the still-elevated interest rate environment.
The Group also recorded a 31.1% increase in average interest-earning assets (IEAs).
In terms of non-interest revenue, UBA recorded a 44.1% YoY growth, driven by net fee & commissions income of N72.0 billion, up 15.7%, and a doubling of net trading and foreign-exchange income to N37.0 billion.
But the Group’s blended asset yield declined slightly to 11.3% from 11.7% it recorded in Q1’24.
Also, UBA recorded a significant narrowing in its net interest margin (NIM) to 6.6%, down from 8.0% in the prior period.
Moreover, the Group’s impairment charges quadrupled to N14.2 billion, pushing the cost of risk higher to 0.7%.
For Access Group, in addition to recording a 42.7% expansion in gross earnings to N1.4 trillion, the Group’s Non-interest Revenue (NIR) grew by 63.0% YoY to N373.4 billion, primarily driven by the net foreign exchange gains of N210.0 billion booked in the period.
Also, net fee & commission income increased by 68.4% to N146.2 billion, further bolstering the expansion of NIR.
For Zenith, in addition to the 92.9% YoY surge in net interest income (NII), the Group recorded a 71.5% YoY rise in interest income, which significantly outpaced the 35.3% increase in interest expense.
This robust growth in interest income was underpinned by a 2.1 percentage points (ppts) improvement in asset yields to 14.4% and a substantial increase in interest-earning assets (IEA) to N24.6 trillion.
Notably, this IEA growth was fueled by a 131.6% YoY jump in treasury bills and a 228.4% YoY increase in placements with other banks.
On the funding side, Zenith Group effectively managed its cost of funds (CoF), achieving a slight 0.2 percentage points (ppts) reduction.
On a record of efficiency Zenith has a substantial 40.4% growth in interest-bearing liabilities (IBL). This efficient cost management, alongside strong interest income growth, lifted the net interest margin (NIM) to 10.2% from 7.7% in Q1’24, reflecting improved profitability from core operations.
On the asset quality front, the Group delivered an improvement, with cost of risk (CoR) declining to 1.3% (from 2.2% in Q1’24), supported by a 27.8% YoY reduction in impairment charges on loans and advances.
However, on a flip side, Zenith’s non-interest revenue (NIR) fell sharply by 67.1% YoY, following a steep 98.8% decline in gains on other trading books and a 2.9% drop in net fee and commission income.
For Fidelity Bank, the second tier in the midst of the banking giants, the story is almost all rosy.
Not only that the bank’s stellar performance was primarily driven by a strong 65.4% YoY rise in interest income, this growth was supported by the 44.6% YoY expansion in interest-earning assets (IEA) and a 2.2 percentage points (ppts) increase in asset yields to 17.1%.
Also given a slower 28.6% YoY uptick in interest expense, Net-Interest Income (NII) rose by 91.5% YoY to N190.8 billion, with a significant 2.8ppts expansion in the Net Interest Margin (NIM) to 11.6%.
Beyond its core earnings, the bank’s Non-Interest Revenue (NIR) surged by 81.2% YoY, driven by sharp increases in net foreign exchange gains (+200.8% YoY) and fair value gains on treasury bills measured at fair value through profit or loss.
Moreover, Fidelity Bank’s asset quality metrics recorded an improvement as Non-Performing Loans (NPLs) declined to N155.4 billion as against Q1’24 record of N161.2 billion, with NPL ratio at 3.2% as against Q1’24 position of 4.1%.
Overall, the bank’s performance translated into notable gains in profitability metrics, with return on average assets (ROAA) rising to 3.8% from 1.9% in Q1’24 and return on average equity (ROAE) increasing to 39.8% from 27.8% in Q1’24.