Kayode Tokede
Following the recent Monetary Policy Rate (MPR) increase to 26.25 per cent by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), 11 deposit money banks (DMBs) have announced massive increase in the cost of servicing customers’ current, savings, and term deposits.
Ananlysis of the banks’ financial reports show a whooping 148 per cent to N3.27 trillion in half-year ((H1) ended June 30, 2024, as against N1.32 trillion reported in the corresponding period of 2023.
The banks include; United Bank for Africa Plc (UBA), Access Holdings Plc, Zenith Bank Plc, FBN Holdings Plc, and Ecobank. Others are: Fidelity Bank Plc, FCMB Group Plc, Wema Bank Plc, Stanbic IBTC Holdings Plc, Wema Bank 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 determination to address galloping inflation. Nigeria’s inflation recorded a year-on-year peak of 34.19 per cent in June 2024(32.70 per cent September 2024).
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.
Analysis of results and accounts released on the Nigerian Exchange Limited (NGX), showed that FBN Holdings reported one of the highest increases in its interest expenses in the period under review, followed by Zenith Bank.
While FBN Holding declared N432.76 billion in interest expenses in H1 2024, about a 219 per cent increase from N135.68billion in H1 2023, Zenith Bank posted N434.36billion interest expenses in H1 2024, representing an increase of 183 per cent from N153.56billion reported in H1 2023.
Ecobank, a Pan-African financial institution, announced N464.87 billion interest expenses in H1 2024, a growth of 160 per cent from N178.89 billion declared in H1 2023.
Access Holdings in the period announced N958.7billion interest expenses in H1 2024, about 151 per cent increase from N382.6billion while UBA reported N328.94billion interest expenses in H1 2024, an increase of 119 per cent from N150.18billion declared in H1 2023.
GTCO’s interest expenses stood at N126.4 billion in H1 2024, a growth of 161 per cent from N48.5billion in H1 2023.
Commenting, the management of GTCO stated that the key driver for the interest expense increase to N126.38billion in H1 2024 from N48.49 billion in H1 2023 was the 642 basis points and 780 basis points pick-up in the cost of savings account and time deposits on the back of adjustment to MPR to which interest paid on savings account is indexed.
“The increase in interest rates impacted interest paid on savings accounts and time deposits, leading to an increase in the group’s cost of funds from 1.4 per cent in H1 2023 to 1.5 per cent in H1 2024,” GTCO added.
On its part, Fidelity Bank announced N146.83billion interest expenses in H1 2024, an increase of 79 per cent from N82.08billion in H1 2023; Stanbic IBTC Holdings posted N71.8 billion interest expenses in H1 2024, an increase of N37.58billion in H1 2023; Wema Bank announced N82.9billion interest expenses in H1 2024, representing an increase of 89 per cent from N43.8billion in H1 2023; FCMB Group’s interest expenses moved from N76.71 billion in H1 2023, up 112 per cent from N162.98billion in H1 2024 and Sterling Financial Holdings disclosed N63.29billion interest expenses in H1 2024, up 100.3 per cent increase from N31.61billion reported in H1 2023.
According to Stanbic IBTC, “Interest expense increased by over 91per cent to N71.8 billion in H1 2024 majorly due to growth in average term deposits and borrowings during the period under review. Cost of funds thereby rose to 4.3 per cent from 3.2per cent in H1 2023.”
With the raising of MPR, the average interest on customers’ savings deposits as of June 2024 stood at 6.67 per cent as against 5.18 per cent in June 2023, while the six-month deposit rate increased to 15.09 per cent as of June 2024 from 8.54 per cent in June 2023.
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.
The DMBs in the period have benefitted significantly from MPR reflected on interest income in the period under review.
Each bank offers different lending rates that reflect their respective approaches to lending to the key sectors in Nigeria, among other African countries where they operate.
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 macroeconomy 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. The rate hike will slow economic growth and reduce consumer spending, according to analysts at FBN Quest.
“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.
