Consequently, it refers to how much banks and financial institutions spend in order to acquire money to lend to their customers.
It can also mean the interest rate banks must pay when they borrow from the Central Bank, (CBN) other banks or corporate organizations for their operations.
The spread between the cost of funds and the interest rate charged to borrowers represents one of the main sources of profit for many financial institutions.
Lower cost of funds commonly generates better returns for banks, particularly, when they are used for short-term.
CBN has had to increase the Monetary Policy Rate, (MPR), anchor rate for banks’ lending to customers, twice, this year, in May and July by 150 and 100 basis points respectively to the current rate at 14 percent in a renewed determination to tackle rising inflation.
The implication is that banks would have to source for funds at higher cost as investors would naturally go for high yielding instruments.
The situation is compounded for banks with ceiling on the amount to be invested in treasury bills, which has been a veritable source of funding, and, apparently, at the expense of financial Intermediation roles expected of banks.
The bank promises to continue to provide superior financial returns, anchoring on its audited results for the half-year ended 30 June 2022, with double-digit growth of 17 per cent in gross earnings, from N346 billion reported in H1 2021 to N405 billion in H1 2022.
The growth in interest income was driven by the modest increase in the loan book and improved interest margins.
Also, Zenith Bank’s profit before tax (PBT) grew by 11 per cent YoY, from N117 billion to N130 billion. Earnings per share (EPS) also grew from N3.38 to N3.55 over same six-month period.
The Group also recorded an 11 per cent year-to-date (YtD) increase in total customer deposits to close the period at N7.15 trillion.
Retail activities also supported the growth recorded in fees on electronic products which grew by 45 per cent YoY, from N17 billion to N25 billion.
“Combined with the Group’s industry leadership, we expect this to drive improved performance and deliver enhanced returns to stakeholders,” the bank stated.
