In the high-stakes world of banking, risk management is the critical differentiator between institutions that thrive and those that merely survive. It’s the razor-thin line that separates banking experts who navigate complex financial landscapes with precision from amateurs who falter under pressure. Effective risk management is paramount to maintaining financial stability and profitability, particularly in the face of credit and interest rate risks.
Lending , a vital component of banking operations, generating high returns, meeting regulatory objectives, building relationships with depositors, and serving the community, is a critical embodiment of risk in banking . . However, lending also exposes banks to various risks, including credit risk and interest ratFor the above reasona , only the players with large heart for risk deploy ernomous assets to that terrain in a bid to outperform the competitors . Sequel to this , the Nigerian banking sector’s loan portfolios reveal a landscape of varying strategies and risk appetites among the major players.
At the end of the 2024 financial year , Access Holdings led the pack with a total loan portfolio of ₦13.1 trillion, demonstrating its aggressive lending approach and significant market share. First Holdco and Zenith Bank also boast substantial loan portfolios, with ₦8.77 trillion and ₦10.99 trillion, respectively, reflecting their strong presence in the market. UBA’s loan portfolio stands at ₦6.95 trillion, while GTCO’s is significantly lower at ₦2.79 trillion, suggesting a more conservative lending approach. These figures provide insight into the banks’ risk management strategies and their ability to navigate the complex Nigerian economy .
GTCO : mixed performance in managing interest rate risk and credit risk.
GTCO’s net interest income grew by 142.41% to ₦1.059 trillion in 2024, despite a significant 148.31% rise in interest expenses. This suggests that the bank has been able to manage its interest rate risk to some extent, as it was able to pass on increased funding costs to its customers. However, the fact that interest expenses rose by 148.31% compared to a 143.63% increase in interest income indicates that GTCO may still be exposed to some level of interest rate risk. Notably, interest expenses accounted for 21% of the interest income generated, implying that for every ₦100 in interest income earned, ₦21 goes towards covering interest expenses.
Further analysis reveals that interest expenses consumed a significant 62.5% of GTCO’s gross earnings, highlighting the substantial impact of funding costs on the bank’s financial performance. Despite this, GTCO’s net interest income after impairment charges stood at ₦921.924 billion, representing 49.3% of its gross earnings after accounting for potential loan losses. This suggests that the bank has been prudent in provisioning for potential credit losses and has maintained a reasonable level of profitability.
In terms of credit risk management, GTCO’s impairment charges stood at ₦136.662 billion in 2024, representing a 32.74% year-over-year increase. This indicates that the bank has been proactive in provisioning for potential loan losses. The bank’s Q1 2025 impairment charges were slightly lower than the same period in 2024, indicating a stable asset quality. However, the significant drop in profit performance in Q1 2025 due to macroeconomic uncertainties highlights the potential vulnerability of GTCO’s credit portfolio.
GTCO’s struggle to meet the Central Bank of Nigeria’s loan-to-deposit ratio (LDR) policy requirement of 65%, with an LDR of 37%, may indicate some challenges in managing its credit risk. Overall, GTCO has demonstrated some capability in managing interest rate risk, but its exposure to credit risk remains a challenge
Access Holdings has demonstrated a strong capability in managing interest rate risk and credit risk, as evident from its impressive financial performance. The bank’s net interest income grew by 82.36% to ₦1.268 trillion, despite a significant 130.71% rise in interest expenses. This suggests that Access Holdings has been able to manage its interest rate risk effectively, as it was able to pass on increased funding costs to its customers and maintain a healthy net interest margin.
Access Holdings’ interest expense as a percentage of interest income is 63.56% (₦2.212 trillion / ₦3.480 trillion), indicating that for every ₦100 in interest income earned, ₦63.56 goes towards covering interest expenses. Additionally, interest expenses account for 45.35% of the bank’s gross earnings (₦2.212 trillion / ₦4.878 trillion), highlighting the significant impact of funding costs on the bank’s financial performance.
The bank’s net interest income after impairment charges constitutes 20.97% of its gross earnings (₦1.023 trillion / ₦4.878 trillion), implying that after accounting for potential loan losses, the bank’s net interest income is relatively modest. Access Holdings’ ability to grow its net interest income despite rising interest expenses and maintain a healthy asset quality suggests that it has effective risk management practices in place.
The bank’s impairment charges stood at ₦245.319 billion, representing a 75.82% year-over-year increase. However, the bank’s net interest income after impairment charges still grew by 84.00% to ₦1.023 trillion, indicating that the bank has been prudent in provisioning for potential loan losses and has maintained a strong asset quality.
Overall, Access Holdings has demonstrated a decent capability in managing interest rate risk, but the high interest expense as a percentage of interest income and gross earnings suggests that the bank may still be exposed to some level of interest rate risk. Nevertheless, the bank appears to be managing its credit risk effectively, given the growth in net interest income after impairment charges .
First Holdco’s financial performance demonstrates the effectiveness of its risk management strategies in driving profitability. Despite the challenges posed by rising interest rates, the company has managed to grow its net interest income by 156.51% to ₦1.401 trillion. This impressive growth is a testament to the company’s ability to navigate complex economic conditions and capitalize on growth opportunities.
The company’s interest expense as a percentage of interest income stands at approximately 41.54%, indicating a significant portion of its interest income goes towards covering interest expenses. However, this has not hindered the company’s ability to generate profits, as evidenced by the substantial growth in net interest income.
First Holdco’s impairment charges, which stood at ₦426.294 billion, represent 13.27% of its gross earnings. This prudent provisioning for potential loan losses has enabled the company to maintain a healthy asset quality, ultimately driving its profitability. The company’s net interest income after impairment charges grew by 203.42% to ₦975.015 billion, underscoring the effectiveness of its risk management practices.
The company’s ability to manage its interest rate risk and credit risk effectively has been instrumental in driving its profitability. By maintaining a strong asset quality and prudent provisioning for potential loan losses, First Holdco has positioned itself for sustained growth and success. The company’s effective risk management practices have enabled it to navigate the challenges of rising interest rates and capitalize on growth opportunities, ultimately driving its profitability and solidifying its position in the market .
UBA’s financial results demonstrate the bank’s ability to manage interest rate and credit risks effectively. The bank’s net interest income grew by 116.35% to ₦1.5 trillion, despite a significant 128.18% increase in interest expenses.
Interest expenses accounted for approximately 36.5% of interest income (₦839.2 billion / ₦2.3 trillion), indicating a notable portion of the bank’s interest income goes towards covering interest expenses. Despite the substantial increase in interest expenses, the bank’s net interest income grew, suggesting effective interest rate risk management.
The bank’s impairment charges stood at ₦253.565 billion, representing approximately 11% of interest income (₦253.565 billion / ₦2.3 trillion). The relatively modest growth in impairment charges (22.71% YoY) compared to interest income (120.40% YoY) and net interest income (116.35% YoY) indicates that UBA has been successful in managing its credit risk.
UBA has demonstrated effective management of interest rate and credit risks. The bank’s ability to grow its net interest income despite rising interest expenses and maintain a healthy asset quality suggests strong risk management practices. The bank’s net interest income after impairment charges grew by 154.98% to ₦1.277 trillion, underscoring the effectiveness of its risk management practices. Overall, UBA’s financial performance is a testament to its ability to navigate complex economic conditions and capitalize on growth opportunities while maintaining a strong risk management framework.
Zenith Bank’s financial results demonstrate the bank’s ability to manage interest rate and credit risks effectively. The bank’s net interest income grew by 134.85% to ₦1.729 trillion, despite a significant 142.96% increase in interest expenses.
The bank’s interest expense as a percentage of interest income stands at approximately 36.5% (₦992.474 billion / ₦2.721 trillion), indicating a notable portion of the bank’s interest income goes towards covering interest expenses. Interest expenses also account for around 25% of gross earnings (₦992.474 billion / ₦3.971 trillion).
The bank’s impairment charges stood at ₦658.805 billion, representing approximately 16.6% of gross earnings (₦658.805 billion / ₦3.971 trillion) and 24.2% of interest income (₦658.805 billion / ₦2.721 trillion). Despite the significant increase in interest expenses and impairment charges, the bank’s net interest income after impairment charges grew by 227.68% to ₦1.070 trillion.
Zenith Bank has demonstrated effective management of interest rate and credit risks. The bank’s ability to grow its net interest income despite rising interest expenses and maintain a healthy asset quality suggests strong risk management practices. The bank’s financial performance is a testament to its ability to navigate complex economic conditions and capitalize on growth opportunities while maintaining a strong risk management framework. Overall, Zenith Bank’s effective risk management practices have enabled it to deliver strong financial performance and create value for its stakeholders.
