Nigeria’s Central Bank Governor, Olayemi Cardoso has given the largest lenders in Nigeria a free lunch through an aggressive tightening stance which strengthened income from investment securities, a good tiding for shareholders who await bumper dividends.
This negates the economic saying that there is no such thing as a free lunch that someone is paying for.
For the first nine months through September 2024, the 10 most liquid and capitalised banks realised N3.64 trillion in income from government and other bonds, which is 166.06 percent higher than 2023’s N1.35 trillion, according to data gathered by MoneyCentral.
All of the lenders saw a surge in investment income as they had invested in government securities when the yields were low and now they are enjoying higher yields.
An unprecedented increase in the central bank’s key rate over five policy meetings to 27.25% from 18.75% at the start of the year, to curb inflation and stop a rout in the naira, has fueled a boom in net interest income. Record yields on fixed-income securities, mainly taken up by banks, have also contributed.
Over the past two weeks, the country’s four largest banks by market value — GTCO, Zenith Bank, UBA and FBN Holdings— all reported that net interest income had more than doubled.
There has been an elevation in yields in the fixed income market since the central bank began hiking the interest rates to subdue a red-hot inflation and stabilise the economy.
Of course, a high interest rate environment to some extent is a boon for financial institutions with enough cash to put in the market so as to generate a higher return that magnifies the earnings of the owners of the business.
The Monetary Policy Committee of the Apex Bank has voted to increase the monetary policy rate, which measures the benchmark interest rate, to 27.25 percent.
Nigeria’s inflation increased in September for the first time in three months, climbing to 32.70 percent year-on-year to 32.15 percent in August, according to the statistics body.
The Nigeria 10-year Government Bond currently offers a yield of 20.84 percent. This yield reflects the return investors can expect if they hold the bond until maturity. Government bond yields are critical indicators of economic confidence and investor sentiment.
Zenith Bank raked in N722.34 billion in income from T-bills and bonds; Access Holdings, N838.14 billion; Untied Bank for Africa, N754.49 billion; FBN Holdings, N538.59 billion; Guaranty Trust Holdings Plc, N387.47 billion; Fidelity Bank Plc, N132.09 billion; FCMB Group, N26.11 billion; Stanbic IBTC Holdings Plc, N128.03 billion; WEMA Bank, N75.46 billion, and Sterling Bank, N39.98 billion.
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