Amid rising interest rates, five Nigerian banks FBN Holdings, FCMB Group, Wema Bank, Stanbic IBTC Holdings, and Sterling Financial Holdings generated a combined N2.6 trillion in interest income from loans and advances in 2024. This represents a 91.5% increase from N1.36 trillion in 2023, as revealed in their unaudited financial statements. The surge in income is largely attributed to the Central Bank of Nigeria’s (CBN) monetary tightening policies, which saw the Monetary Policy Rate (MPR) rise to 27.50%.
FBN Holdings led the pack with N1.36 trillion in interest income, marking a 124% growth from the previous year. FCMB Group recorded N433.09 billion, up 59%, while Stanbic IBTC Holdings posted N391.62 billion, reflecting a 71% rise. Wema Bank and Sterling Financial Holdings reported N230.98 billion and N177.61 billion, respectively, growing by 89% and 45% year-over-year. Overall, the five banks generated N4.22 trillion in interest income across various lending segments, a 122% increase from N1.9 trillion in 2023.
The rise in interest income aligns with the sharp increase in lending rates. The average maximum lending rate rose to 29.71% in December 2024, up from 26.62% the previous year. The prime lending rate also reached a 14-year high of 18.56%, reflecting the impact of MPR hikes from 18.75% to 27.50% within the year. These rate hikes were aimed at curbing inflation and stabilizing the naira, but they also significantly increased the cost of borrowing for businesses and individuals.
Analysts have raised concerns about the effects of higher borrowing costs on businesses, particularly small and medium enterprises (SMEs). While banks have benefited from higher interest earnings, businesses struggling with elevated costs may find it difficult to access credit, potentially leading to reduced economic activity. Fitch Ratings has projected that CBN will maintain its tight monetary stance in the near term to control inflation, despite potential political pressures and implementation challenges.
Financial experts argue that banks determine their lending rates based on MPR signals, cost of funds, and deposit mix. Investment banker Tajudeen Olayinka explained that while MPR influences rates, banks also factor in their funding costs when setting prime lending rates. Similarly, Omordion Ambrose of InvestData Consulting warned that persistently high lending rates could hinder business competitiveness, drive up production costs, and reduce consumer purchasing power, further straining the economy.
Source: THIS DAY