MPR: Access, GTCO, UBA Others’ Interest Income Up 121.3% to N1.64tn

Kayode Tokede

Following a high-interest environment, nine banks generated N1.64 trillion from loans & advances to customers in the first quarter of 2024, representing an increase of 121.3 per cent from N739.19 billion generated in the first quarter of 2023.

The banks include: Access Holdings Plc, Guaranty Trust Holding Company Plc (GTCO), United Bank for Africa Plc (UBA), Zenith Bank Plc, and Ecobank Transnational Incorporated Plc (ETI).

Others are: Stanbic IBTC Holdings Plc, Wema Bank Plc, Fidelity Bank Plc, and FCMB Group Plc were among the banks THISDAY investigation.

Analysts believe the increase in Monetary Policy Rate (MPR) to 24.75 per cent (currently increased to 26.25 per cent), by the Central Bank of Nigeria (CBN) is responsible for the hike in interest income.

Recently, Fitch Ratings projected that the CBN will maintain a stand on continued tightening policy in the near term, “which seems necessary to more fully control inflation as rapid credit and money-supply growth suggests a still-loose monetary context.

“Such a tightening will still face implementation challenges, partly due to the potential for countervailing political pressure. However, without further sizable monetary tightening, it may be difficult to achieve macroeconomic stability – real interest rates remain negative, deterring inward portfolio investment.”

THISDAY analysis of the banks’ Q1 2024 results revealed that Access Holdings reported one of the highest interest income from loans & advances to customers in the period under review, followed by Ecobank and Zenith Bank Plc.

During the period under review, Access Holdings announced N335.84 billion interest income from loans to customers, an increase of 125 per cent from N149.1billion in Q1 2023, while Ecobank declared N326.73billion interest income from loans to customers in Q1 2024, a growth of 178.6 per cent from N117.3billion reported in Q1 2023.

On its part, Zenith Bank posted N300.5billion interest income from loans to customers in Q1 2024, representing 142.6 per cent growth from N123.87billion in Q1 2023, as UBA announced N195.31 billion interest income from loans to customers in Q1 2024, about103.3 per cent from N96.05billion reported in Q1 2023.

GTCO and Fidelity Bank reported interest income from loans to customers crossed the N100 billion in Q1 2024 amid growth in loans granted to customers in the period under review.

As Fidelity Bank announced N128.54 billion interest income from loans to customers in Q1 2024, representing nearly 74 peer cent from N73.91 billion in Q1 2023, GTCO posted N122.04 billion interest income from loans to customers in Q1 2024, about 92 per cent growth from N63.59 billion declared in Q1 2023.

Following the increase in the MPR or interest rate from 18.75per cent to 24.75 per cent, Nigerian banks’ average prime lending rate rise to 15.70 per cent in March 2024.

Amid hike in CBN’s interest rate to 24.75 per cent, the banking sector average maximum lending rate rose to 29.38 per cent in March 2024, the highest since 2020.

Maximum lending rate refers to the rate charged by commercial banks for lending to customers with low credit rating.

The apex bank in its money market indicator revealed that the average maximum lending rate opened January at 27.07 per cent when MPR was at 18.75 per cent and dropped to 26.55 per cent when the monetary policy committee of CBN hike MPR to 22.75 per cent.

In 2020, the average maximum lending rate reached a peak of 30.73 per cent when the MPR rate stood at 13.5 per cent

The average maximum lending rate had closed 2023 at 26.62per cent on the backdrop of CBN hike in MPR to 18.75per cent.

The unanticipated rise in MPR has impacted on the banking sector lending rate as the CBN sustained pressure in tackling inflationary pressure.

This unprecedented move has not only set the MPR at its highest level to date but also reflects the CBN’s determined effort to address the persistent economic pressures.

The decision has garnered praise from the International Monetary Fund (IMF), which commended the MPC’s resolve to tighten monetary policy further by increasing the policy rate to 24.75 per cent.

Such a strategic manoeuvre aims to curb the inflation surge, which recorded a year-on-year peak of 33.69 per cent in April 2024, and to mitigate the depreciative pressures on the naira.

However, the steep increase in the policy rate has sparked concerns regarding the potential impact on the cost of credit for businesses already facing economic hardships.

Each bank offers different lending rates that reflect their respective approaches to lending to the manufacturing sector in Nigeria.

In Nigeria, large corporations perceived as having lesser risk with a history of generating consistent cash flows are offered prime lending rates, while small businesses and individuals perceived as having higher risk typically fall above the prime lending rate margin.

Analysts have attributed the increase in lending to the hike in MPR and severe macro economic challenges.

The recent announcement, made by CBN Governor, Dr. Yemi Cardoso, had highlighted the central bank’s proactive approach towards monetary tightening amidst challenging economic conditions.

Speaking, Investment Banker & Stockbroker, Tajudeen Olayinka in a chat with THISDAY said, the current high interest rate regime in Nigeria is the outcome of a deliberate policy of the central bank to encourage foreign inflows into Nigeria from foreign portfolio investors, in a way to increase accretion to foreign reserves and stabilize exchange rate of the Naira.

He explained further that, “This is the reason for rising interest rate in the economy, with continued repricing of securities across markets and instruments, including loans and advances by banks. So, high interest rate regime will remain with us for as long as it takes CBN to achieve its exchange rate and inflation objectives.”

In tackling it, he said, “I think its sustainability will guide CBN’s decision, going forward. For me, the huge debt service cost to the government and its further threat to inflationary pressure are clear indications that the policy may not be sustainable.”

Commenting, Economist and Investment Specialist, Dr. Vincent Nwani highlighted that banks lending rate (excluding charges & fees) moved from 21.79per cent in June 2023 to 29.3per cent in March 2024; Inflation rate moved from 22.79 per cent in June 2023 to 31.7per cent in February 2024; Exchange rate moved from N760/$ in June 2023 to   N1,450/$ in May 2024.

“All of the above depicts an extraordinary stress to businesses in the country across all sectors and the implication of this on the sustainability and competitiveness of the business is telling on the immediate and on the long term.

“Businesses are increasingly scaling down, cutting back employment and adapting all sorts of lean measures to navigate the rough dispensation and how long they will cope remains to be seen.”

On the way forward, he said, “On the immediate, the palliative measures for businesses earlier announced by the president should be implemented. In addition, we look to see some fiscal complementary and business friendly measures.

“For instance, regulatory related charges and fees should be reviewed, streamlined, and reduced in a bid to reduce financial burden on businesses.”