It appears the central bank’s hawkish tone this year is a boon for banks who are enjoying juicy yields that adds impetus to the bottom line (profit) even amid regulatory headwinds and sluggish economic recovery.
The largest and most liquid banks collectively generated N416.66 billion in June 2022, the highest in close to a decade, according to data gathered by MoneyCentral.
The current figure (half-year 2022) is higher than the N356.71 billion raked in 2017 when yields were at an all-time high of between 22-18 percent.
Banks ingeniously pack their money in fixed income securities when interest rates are rising as they earn sizable returns that strengthen profitability and the return on equity.
Of course interest rates have been rising on the back of a shift from accommodative policy to hawkish tone by the regulator who seeks to tame red-hot inflation in the face of global political tensions.
The Monetary Policy Committee of the Central Bank of Nigeria has increased the benchmark interest rate (monetary policy rate) from 13% to 14%.
Nigeria‘s headline inflation climbed to a new high of 20.52 per cent in August on a year–on–year basis, according to data from the National Bureau of Statistics (NBS).
The Nigeria 10Y Government Bond has a 12.811% yield, according to data from Government Bonds.
It is positive for banks in view of the challenges that they have faced in recent times, said Gbolahan Ologuro, equity research at Cordros Securities.
“Now we are seeing soft growth in profitability that what we have seen in the past few years,” said Ologunro.
The industry return on average equity (ROE) of the most liquid and capitalised lenders rose to 13.71 percent in June 2022 from 11.26 percent as at June 2021, according to MoneyCentral calculations. That is higher than the 13.69 percent figure in 2020.
Their combined net income reached N496.47 billion, which is 18.42 percent from 2021’s N419.22 billion the previous year.
A higher yield has also helped banks reprise their loan books in line with the prevailing yields environment, but loans have been stagnant due to the current macroeconomic conditions.
Banks realised a combined N1.19 trillion in interest on loans and advances from customers, which is 26.73 percent higher than 2021’s N939.10 billion, according to data gathered by MoneyCentral.
Analysts say investors should add banks’ stock to their portfolio because rising interest rates amid spiraling inflation will continue to lift earnings till next year.