In the first three quarters of 2023, Deposit Money Banks (DMBs) in Nigeria collectively reported an impressive profit of approximately N4.20 trillion, nearly doubling the N2.07 trillion recorded in the same period in 2022. This remarkable increase reflects a significant 102.81% rise, driven predominantly by banks listed on the Nigerian Exchange Limited, which includes prominent Tier-1 banks such as Zenith Bank, Guaranty Trust Holding Company (GTCO), Access Corporation, United Bank for Africa (UBA), and FBN Holdings, among others. This surge in profitability is noteworthy, especially considering it is occurring within a challenging economic environment marked by high interest rates.
The Central Bank of Nigeria (CBN) has adopted an aggressive monetary policy stance throughout the year, raising the benchmark interest rate from an initial 18.75% to 27.25% across five Monetary Policy Committee meetings in a bid to combat inflation and strengthen the depreciated naira. The purpose of these measures is to curb inflationary pressures and stabilize the currency, which has experienced significant volatility. In this context, banks have managed to boost profits significantly by capitalizing on record yields from fixed-income securities, which have been largely acquired by these financial institutions, thus bolstering their bottom line.
A closer examination of the financial statements from major banks reveals that interest income has been a principal factor in driving profit growth. The four largest banks by market capitalization—GTCO, Zenith Bank, UBA, and FBN Holdings—have all reported substantial increases in net interest income, which has more than doubled year-on-year. For instance, Access Bank reported an impressive 116.65% increase in its net interest income, rising from N389.96 billion to N844.84 billion. Among the ten banks studied, GTCO led with a profit figure of N1.09 trillion, showcasing a remarkable 195% rise compared to the previous year’s figures, followed closely by Zenith Bank, FBN Holdings, and UBA, each of which also posted significant gains.
Despite the banks reaping the benefits of high-interest rates, there are growing concerns from members of the Organised Private Sector (OPS) regarding the sustainability of such a monetary policy approach. Following the CBN’s recent interest rate hike, industry stakeholders are apprehensive that these successive increases will exacerbate the challenges faced by both small and medium-sized enterprises as well as large manufacturers. The National President of the Association of Small Business Owners of Nigeria has voiced discontent, pointing out that such financial pressures may raise the cost of borrowing and ultimately lead to increased prices for consumers, stifling business activity and potentially resulting in a contraction of the manufacturing sector.
The Lagos Chamber of Commerce and Industry (LCCI) has echoed similar sentiments regarding the monetary policy framework. The chamber advocates for a more balanced approach that considers the dual objectives of controlling inflation and promoting economic growth. They emphasize the importance of supporting the real sector, which has been adversely affected by rising interest rates. In their recommendations, the LCCI calls on the government and the CBN to prioritize capital expenditure to stimulate business activity and enhance economic contribution, thereby preventing a downturn in the economic landscape as businesses struggle under the weight of increased borrowing costs.
In summary, while the remarkable profit growth reported by Nigeria’s Deposit Money Banks indicates their successful navigation of a high-interest rate environment, the potential detrimental impact on the broader economy cannot be overlooked. Stakeholders from the private sector are increasingly advocating for a reassessment of the monetary policy direction to safeguard against possible negative outcomes, such as a rise in non-performing loans and reduced economic activity. The delicate balance between maintaining financial stability and fostering an environment conducive to business growth remains a pressing concern as both the banking sector and the overall economy navigate these turbulent waters.
