Leading deposit money banks in Nigeria have reported a remarkable 141.75 percent Year-on-Year (YoY) increase in their interest income for the half year ending June 2024 (H1’24). This surge is primarily attributed to ongoing interest rate hikes by the Central Bank of Nigeria (CBN).
The CBN’s Monetary Policy Committee (MPC) has consistently raised the Monetary Policy Rate (MPR) over the past 10 months, from 18.5 percent to a record 27.25 percent last week, as part of efforts to manage inflationary pressures. The MPR serves as the benchmark interest rate on which other interest rates in the money market are based.
In response to the rising MPR, deposit money banks have increased their lending rates significantly, often surpassing the increases in their deposit rates. A report by Vanguard reveals that the 11 leading commercial banks recorded a total interest income of N6.89 trillion from loans in H1’24, compared to N2.8 trillion in the same period in 2023.
The banks included in the report are Zenith Bank Plc, Access Bank, Stanbic IBTC, Guaranty Trust, United Bank for Africa (UBA), First Bank, FCMB, Wema Bank, Union Bank, Ecobank, and Sterling Bank.
According to Vanguard’s findings, tier-1 banks earned the highest interest income from loans during this period. Access Bank led with N1.3 trillion, up from N596 billion in the corresponding period of 2023, followed closely by Ecobank with N1.2 trillion, up from N445.9 billion. UBA earned N1.008 trillion, compared to N428.2 billion in H1 2023, while First Bank reported N947.7 billion, an increase from N371.1 billion in 2023. Zenith Bank also saw a significant rise, with N946.62 billion, up from N351.04 billion.
Fitch Ratings previously indicated that Nigerian banks’ profitability would benefit from a significant increase in net interest margins (NIMs) due to the recent hikes in the MPR. The rating agency noted that the rise in rates is accompanied by a sharp increase in fixed-income yields following the large naira devaluation at the end of January. A considerable proportion of fixed-income securities held by the banking sector is short-term, so the increased yields will quickly translate to higher asset yields. Additionally, most loans being variable-rate will enable upward repricing in response to rising interest rates.