By Nkiruka Nnorom

Leading deposit money banks in Nigeria have recorded a 141.75 percent Year-on-Year (YoY) increase in their interest income for the half year ended June 2024 (H1’24) on the back of consistent hikes in interest rate by the Central Bank of Nigeria, CBN.

The Monetary Policy Committee, MPC, of the CBN has been raising the Monetary Policy Rate, MPR, consistently in the past 10 months from 18.5 percent to a record 27.25 percent last week, a bid to contain inflationary pressures.

MPR is the benchmark interest rate upon which other interest rates in the money market are built.

Following the steady rise in the MPR, deposit money banks have been marking up their lending rates far higher than the raise in their deposit rates.

Vanguard’s findings from the 11 leading commercial banks show the banks recorded N6.89 trillion as interest income on loans in the first half of the year, H1’24, compared to N2.8 trillion in the same period in 2023.

The banks are Zenith Bank Plc, Access Bank, Stanbic IBTC, Guaranty Trust, United Bank for Africa (UBA), First Bank, FCMBc, Wema Bank, Union Bank, Ecobank and Sterling Bank.

Details of the Vanguard’s findings shows that tier-1 banks earned the most from loans advanced within the period and Access Bank is leading with N1.3 trillion up from N596 billion in the corresponding period of 2023, while Ecobank followed with N1.2 trillion up from N445.9 billion. UBA made N1.008 trillion compared to N428.2 billion recorded in H1:23; First Bank posted N947.7 billion up from N371.1 billion in 2023, while Zenith Bank posted N946.62 billion up from N351.04 billion.

Fitch Ratings had earlier this year said that Nigerian banks’ profitability will benefit from a marked increase in net interest margins (NIMs) driven by recent increases in the MPR.

The rating agency in a report titled: ‘Nigerian Banks to Benefit from Monetary Policy Rate Increases’, stated: “The rate rise accompanies a sharp increase in fixed-income yields since the large naira devaluation at the end of January. A high proportion of fixed-income securities held by the banking sector is short-term, so the increased yields will quickly feed through to higher asset yields. Asset yields will also benefit from most loans being variable-rate, enabling upward repricing in response to rising interest rates. 

“However, we expect banks to exercise caution in fully passing on higher rates to certain customers in view of potentially burdensome debt servicing costs, particularly given the challenging macroeconomic conditions.

“Funding costs will be less responsive to higher interest rates as a high proportion of customer deposits at most banks is in current and savings accounts. As a result, NIMs will widen markedly in 2024.”