 profit rose as lenders’ net interest income were bolstered by a slew of interest rate hikes){kind=link}
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Nigerian banks’ first-quarter (Q1) profit rose as lenders’ net interest income were bolstered by a slew of interest rate hikes by the central bank even amid a stringent regulatory environment.
Banks have been some of the most prominent beneficiaries of the central bank’s aggressive monetary policy aimed at bringing down inflation that is exacerbated by the Russia and Ukraine war and acrimonious bedlam between farmers and herders that resulted in food shortage.
The combined profit after tax (PAT) of the largest banks spiked by 39.72 percent to N355.58 billion in March 2023 from N254.48 billion as at March 2022, according to data gathered by MoneyCentral.
Their combined net interest income (NII) was up 30.73 percent to N635.57 billion in March 2022 from N486.14 billion as at March 2022.
Net interest income is a financial performance measure that reflects the difference between the revenue generated from a bank’s interest-bearing assets and the expenses associated with paying on its interest-bearing liabilities.
The Nigeria 10 year government bond has a 14.450 percent yield, according to data from World Government Bonds (WGB).
The Central Bank of Nigeria raised its monetary policy rate to 18% from 17.5% in its February 2023 meeting, marking the second interest rate hike in 2023.
The Nigerian banks sector who are the most regulated have reeling from a harsh regulatory environment that prevents them from growing earnings as they are supposed to.
Analysts at Afrinvest Securities in a recent report said the hike in both MPR and CRR by 400bps and 500bps (to 15.50% and 32.50%, respectively) leaves the bank in a pain-and-gain situation.
“On one hand, the increased MPR presents an opportunity for banks to reprice their loans with customers to reflect the current market realities and higher yields on investment securities,” said analysts at Afrinvest Securities.
“On the other hand, a higher MPR would result in higher funding costs (as deposit rates are anchored on the MPR). Also, higher CRR results in lower system liquidity, which limits the banks’ credit creation ability,” said the analysts.
Banks are ingenious as they are investing in latest technology that has been adding impetus to digital and electronic banking which helps bolster earnings.
It is expected that political stability, softer monetary conditions in developed countries, and a flexible exchange rate regime will help drive the fortune of banking stocks.
The NGXASI Baking index has a positive year to date of 4.06 percent, which outperforms the NGXASI index of 0.25 percent.
The impressive performance allays the fears of investors who fret over the future of sector players following huge write-offs due to impairment from Ghana debt crisis.