Nigerian lenders grew earnings in the most recent third quarter amid foreign exchange trading restrictions imposed by the regulator as weak economic conditions culminated in banks deliberately avoiding expensive deposits.

The cumulative net income of 14 commercial bank’s which have released third quarter 2015 financial results increased by 9.75 percent, to N541.70 billion, compared with N494.33 billion last year.

This compares with an 8.75 percent earnings increase in the period between 2014 and 2015.

The banks also grew their top line as high yields on investment securities culminated in a 25.60 percent increase in combined interest income to N1.84 trillion in 2015 from N1.47 trillion last year.

“Interest income, which was strong in the first half of 2015 positively impacted on the profitability of the banks in 9M-15,” said Tajudeen Ibrahim, team head, Chapel Hill Denham, a Lagos based securities and investment firm in an email note to BusinessDay.

“The slower growth of net income relative to interest income in the third quarter is partly explained by weak non-interest income and higher impairment losses,” said Ibrahim.

Industry analysts say these results are impressive given the harsh operating environment characterised by regulatory headwinds.

While earnings increased in the last three quarters, weak economic conditions, low risk appetite of banks and avoidance of expensive deposits have impacted on deposits and loan growth.

For the first nine months through September 2015, the cumulative deposits from customers of the 14 lenders increased by just 0.93 percent, to N19.03 trillion in 2015, from N18.86 trillion last year.

Loans and advances to customers were up by a single digit of 4.54 percent to N13.09 trillion in the period under review from N12.52 trillion the previous year.

The loan growth is lower than the 17.10 percent increase recorded year on year in the 2014 financial year.

The deposit growth trajectory may be directly tied to the state of the economy.

It costs more for the households and businesses to carry out the same activities, and so there is less to save, or hold in deposits, said Saheed Bashir, an equity research analyst with Meristem Securities Limited, a research and investment firm in an emailed note to BusinessDay.

“Loan growth is directly tied to deposit growth due to the Loans to Deposits Ratio (LDR). Banks are required to maintain a ratio <=80%, and so in the event that deposit growth is slow, loan growth will be muted. This is the reason for the slow growth in loans,” said Bashir.

Economic growth in Africa’s largest economy slowed to 2.4 percent in Q2 2015, with a marginal increase to 2.84 percent in Q3 of 2015 compared to nearly 4.0 percent in the first quarter of 2015, and 6.2 percent in the fourth quarter of 2014, according the NBS data.

The unemployment rate rose to 9.9 percent in the most recent period, while inflation printed at 9.3 percent, above the Central Bank’s target range of between 6 percent and 9 percent.

Despite the slowdown in deposits the cumulative interest expense increased by 29.14 percent to N668.65 billion in the period under review.

“With respect to higher interest expenses, the main drivers have been private sector CRR hike to 20 percent in November 2014 which fuelled a 4Q14/1Q15 jump in deposit rates as well as a CBN audit to ensure proper classification of public sector deposits,” said Adesoji Solanke, a bank analyst with Renaissance Capital in an email response to questions.

“The single area the banks have the most control over is costs, where significant adjustments may need to be made to help offset some of the significant revenue and asset quality headwinds in 2016,” said Solanke.