MPR: Five Banks Generate N1.62tn from Loans to Customers

Nume Ekeghe

Ecobank and four other banks generated an estimated N1.62 trillion interest income from loans & advances to customers in half year ended June 30, 2024, an increase of 120 per cent over N736.09 billion reported in half year ended June 30, 2023. 

The increase can be attributed to the sustain hike of Monetary Policy Rate (MPR), now 26.25 per cent, by the Central Bank of Nigeria (CBN).

The five banks are FCMB Group Plc, Ecobank, Wema Bank Plc, FBN Holdings Plc and Sterling Financial Holdings Company Plc.

The unprecedented increase has not only set the MPR at its highest level to date but also reflects the CBN’s determined effort to address the persistent pressure on foreign exchange and inflation.

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 26.25 per cent.

Such a strategic manoeuvre aims to curb the inflation surge, which recorded a year-on-year peak of 34.19 per cent in June 2024, and to mitigate the depreciative pressures on the naira.

Analysis of the select banks’ unaudited results and accounts showed that Ecobank, a pan-African financial institution generated N641.08 billion interest income from loans & advances to customers in H1 2024, a 160.1 per cent increase from N245.43billion, while FBN Holdings declared N568.9 billion interest income from loans & advances to customers in H1 2024, about 131.8 per cent increase from N245.4 billion reported in H1 2023.

On its part, FCMB Group posted N192/46 billion interest income from loans & advances to customers in H1 2024, a 68 per cent increase from N114.4billion; Sterling Financial Holdings Company reported N120.88 billion interest income from loans and advances to customers in H1 2024, a growth of 58 per cent from N76.7 billion in H1 2023.  

In addition, Wema bank reported N94.25 billion interest income from loans & advances to customers in H1 2024, about 76.1 per cent increase from N53.5 billion reported in H1 2023. 

With the raising MPR, the banking sector average maximum lending rate dropped to 29.11 per cent in June 2024 from 28.67 per cent reported by the CBN in May 2024.

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.

Recently, the CBN Governor, Dr. Yemi Cardoso, in a statement highlighted the central bank’s proactive approach towards monetary tightening amidst challenging economic conditions.

But analysts at FBN Quest contended that the rate hike will slow economic growth and reduce consumer spending.

“Ultimately, the impact on the general economy could be a potential slowdown in economic growth, with consumer spending suppressed, and a decrease in business investments,” FBN Quest said in a recent note.

But Professor of Capital Market at the Nasarawa State University, Prof. Uche Uwaleke said the hike in is targeted at further reducing liquidity from the banking system and jerk up cost of credit with adverse consequences on output.

Responding to MPR increase, he stated that, “Having done 750 basis points between February and May this year, I had predicted they would do a minimum of 50basis points or a max of 100basis points in July.

“I am glad to note that they chose the floor which is a sign that a complete halt is most likely in their next scheduled meeting in September. But the adjustment to the asymmetric corridor around the MPR is a major source of concern for me.

“The MPC communique did not provide any explanation for increasing the SLR from +100 to +500 and the SDR from -300 to -100. By implication, with an MPR of 26.75 per cent, banks will now get loans from the CBN at 31.75per cent while they will be remunerated for their excess deposits at 25.75per cent.”

He added, “This will further squeeze liquidity from the banking system and jerk up cost of credit with adverse consequences on output and the equities market.

“The MPC communique should have made it clear why it was better to mask the tightening in the asymmetric corridor than reveal it in the MPR. May I observe that, unlike previous MPC communiques, recent ones are silent regarding how the members voted. This information is useful at this stage even before their personal statements are published.”

He added that, “I submit that as far as taming the current elevated inflation in Nigeria is concerned in view of its major non-monetary drivers, the fiscal side holds the ace.”