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Sunday, October 2, 2022

Nigeria Banks Profitability Returns to Pre-pandemic Level

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Banks’ profitability in Nigeria have exceeded the pre-pandemic levels in the first half of 2022, as a hawkish tone by the central bank and devaluation of the currency are a boon for lenders.

The industry returns 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 higher than the N419.22 billion earned in the previous year.

This is the fastest profit growth since 2017 even amid regulatory imposed-macro difficulty such a high cash reserve ratio, minimum loans to deposit ratios, and competition with Telco’s and fintechs.

Net interest income, a key source of revenue, has gotten a boost so far as interest rates rise on the back of a hike in policy rate by the central bank which seeks to tame red-hot inflation, helping to buffer the bottom line of lenders.

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) raised the benchmark interest rate to 14 percent from 13 percent. This is the second consecutive jerk-up this year and it is expected that the policy maker will continue to tighten rates this year until price stability is restored.

Annual inflation rate in Nigeria increased to 19.64% in July of 2022, the highest since September of 2005, from 18.6% in June, with a weakening naira continuing to pressure the cost of imports up.

The combined net interest income of the largest listed banks stood at N1.13 trillion as at June 2022, which is 29.32 percent higher than 2021’s N874.10 billion, according to data gathered by MoneyCentral.

Net interest income (NII) is the difference between revenues generated by interest-bearing assets and the cost of servicing (interest-burdened) liabilities. For banks, the assets typically include commercial and personal loans, mortgages, construction loans and investment securities.

A major depreciation of the currency amid geopolitical tension and policy maker’s lack of transformational policies that stifles foreign direct investment is a blessing in disguise for banks that are able to book major trading and revaluation gains.

United Bank for Africa, a Pan-African lender with branches across the continent, saw net income increase by 16.09 percent to N70.33 billion as at June 2022, higher than the N56.73 billion recorded in 2019, a pre-pandemic period.

The lender’s ROAE moved to 17.65 percent in the period under review from 15.05 percent the previous year.

First Bank Holdings Plc’s net income spiked by 48.60 percent to N56.53 billion in June 2022 from N38.04 billion the previous year; ROAE increased to 12.80 percent in the period under review from 8.64 percent the previous year.

Stanbic IBTC Holdings profit after tax (PAT) grew by 36.04 percent to N30.67 billion in June 2022 from N22.54 billion as at June 2021; ROAE moved to 16.25 percent in June 2022 from 11.96 percent the previous year.

However, there are indications the elevated interest rate environment that is stoking inflationary pressures means banks will face funding cost and operating cost pressures.

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