A total of seven banks generated N570.43 billion from loans granted to customers in the first half (H1) of 2022 amidst the hike in the Monetary Policy Rate (MPR).
Investigation revealed that the seven banks had generated N457.95 billion in interest income from loans granted to customers in H1 2021.
The Central Bank of Nigeria (CBN) increased its monetary rate from 11.5 percent to 13 percent in May, then 14 percent at its last Monetary Policy Committee (MPC) meeting held in July 2022.
The CBN said it increased the MPR in response to global inflationary pressures, which had continued to hurt economies around the world.
The hike was the first time in two and a half years that the policy-setting committee of the CBN will increase the MPR, which measures the interest rate.
other lending rates by banks to the public.
The prime lending rate in the banking sector hit 12.29 per cent in June, the highest in 17 months, whilst the maximum lending rate dropped to 27.61 per cent in June 2022 from 27.65 per cent reported in January 2022.
Prime lending rates are the interest rate that commercial banks charge their most creditworthy customers, generally large corporations.
With the exclusion of Sterling Bank, the likes of Ecobank Transnational Incorporated (ETI), FBN Holdings Plc, FCMB Group Plc, Union Bank of Nigeria Plc, Unity Bank Plc, and Wema Bank Plc generated double-digit increase in interest income on loans granted to customers in the period under review.
Specifically, Sterling Bank reported N47.04billion interest income from loans to customers in H1 2022, representing an increase of 7.88per cent from N43.61billion in H1 2021.
For ETI, its interest income from loans to customers rose by 16.3 percent to N168.7billion in H1 2022 from N145.08billion in H1 2021 as FBN Holdings announced 36 percent to N166.32billion as interest income generated from loans to customers in H1 2022 from N122.03billion in H1 2021.
FCMB Group reported N78.75billion as interest income from loans to customers in H1 2022, representing an increase of 25 percent from N63.08billion in H1 2021, while Union Bank of Nigeria closed H1 2022 with N50.46billion interest income from loans to customers as against N40.7billion in H1 2021.
Other banks, Unity Bank reported N19.17billion interest income from loans to customers in H1 2022, representing an increase of 26 percent from N15.15billion in H1 2021, while Wema Bank generated a whopping sum of N39.97billion from interest income from loans to customers in H1 2022 from N28.33billion in H1 2021.
Commenting on banks reaping robust interest income from customer’s deposit, the Vice President, Highcap Securities Limited, Mr. David Adnori said, “Most customers are only able to obtain loans at a rate higher than the prime rate mostly because they are more likely to default on a loan.
“An increase in the MPR by the MPC will result in an increase in the price (interest rate) you pay for borrowing and vice versa.
“Banks responded to this hike by jacking up their lending rate as well. The consequence of this is that borrowers would have to pay more when they borrow from the bank.”
He added that the recent decision by the MPC to hold MPR at 14 percent, implies that businesses looking to borrow from banks to fund their operations would only be able to get loan facilities from banks at rates above 14per cent
“That is, the cost of borrowing would still remain on the high side. At MPR as high as 14per cent, businesses would continue to face high cost of borrowing and limited funds for local production,” he added.
Speaking, analysts at Vetiva research stated: “We expect cost pressures and FX liquidity issues to persist throughout the year and this may dampen the anticipated price stability as industry players may have to pass the increased cost to consumers.
“Also, the recent hike in interest rates by the CBN will make borrowings more expensive and may weigh on investments in the real estate sector.
“Although the rising interest rate may affect demand, the ongoing construction activities by the public and private sectors would support cement demand through the remainder of the year.”
Analysts at FSDH Capital in a report titled, “Nigeria Macroeconomic Update 2022 Q2: Navigating through Bumpy Political Season and Tough Economic Headwinds,” explained that the aggressive inflationary pressure has necessitated the need for a higher interest rate in Nigeria and other countries