Inflation Hits Nigerian Banks Hard Despite Rising Earnings in Q1 2025
As Nigeria grapples with surging inflation and tightening monetary policies, banks across the country are experiencing severe cost pressures that are eroding profits and increasing operating expenses. The unaudited first-quarter 2025 financial statements of major banks, recently approved by the Central Bank of Nigeria (CBN), reveal a troubling trend: while gross earnings continue to rise, profitability is being choked by spiraling operational and interest-related costs.
Inflation & High Interest Rates Fuel Cost Surge
The current 27.5% Monetary Policy Rate (MPR)—nearly double what it was two years ago—has significantly increased funding costs for banks. In tandem, inflation has driven up personnel costs, regulatory levies, and IT expenditures, contributing to a marked rise in Operating Expenses (OPEX).
Bank-by-Bank Breakdown:
First Bank Group
- OPEX growth has offset gains from reduced impairment charges.
- Cost-to-income ratio (CIR) rose to 52.3%.
- Net interest income (NII) rose 61% YoY to ₦365.2 billion.
- PAT dropped 17.9% YoY to ₦167.4 billion due to a sharp 60% drop in non-interest revenue (NIR).
United Bank for Africa (UBA)
- Cost of funds rose to 3.7% from 2.8%, narrowing net interest margin (NIM) to 6.6%.
- PAT rose 33.1% YoY to ₦189.8 billion.
- Gross earnings grew 37.3% to ₦712.2 billion.
- OPEX rose 12.3% to ₦245.8 billion.
Guaranty Trust Holding Company (GTCO)
- OPEX increased by 23.2%, hitting ₦122.7 billion.
- CIR surged to 28.1% from 16% in Q1 2024.
- Net interest margin improved to 10.2%.
- Interest income grew by 71.5%, outpacing the 35.3% increase in interest expense.
Zenith Bank
- OPEX rose 38.9% YoY, pushing CIR to 41.2%.
- PAT climbed 20.7% YoY to ₦311.8 billion.
- NII surged 92.9% YoY.
- Asset yield rose to 14.4%; interest-earning assets grew to ₦24.6 trillion.
Access Bank Group
- Interest expense rose 71.3% YoY.
- PAT grew by 14.7% to ₦182.7 billion.
- Gross earnings rose by 42.7% to ₦1.4 trillion.
- Net interest margin dropped to 3.6% from 6.5%.
Fidelity Bank (Tier-2 standout)
- PAT soared by 290% YoY to ₦91.1 billion.
- NII rose 91.5% YoY to ₦190.8 billion.
- ROAA jumped to 3.8%, ROAE to 39.8%.
- NPL ratio improved to 3.2%, down from 4.1%.
Conclusion:
While Nigeria’s leading banks have demonstrated resilience with improved gross earnings and in many cases higher profits, the impact of inflation, high-interest rates, and rising OPEX cannot be ignored. The sharp increase in funding costs and operating expenses has dampened bottom-line growth, especially for First Bank and Access Bank. Meanwhile, Fidelity Bank stands out with an exceptional performance in both profit and asset quality management, showing that sound strategy can offset macroeconomic headwinds.
