The Nigerian banking sector is experiencing a notable surge in profits despite the broader economic challenges facing the country. Key findings from Financial Vanguard’s report on the operating results of 11 leading deposit money banks (DMBs) for the first half of 2024 (H1’24) reveal a significant increase in gross earnings and profits. The banks’ earnings jumped by 131.9% to N11.7 trillion, while their profit before tax (PBT) rose by 101.9% to N3.7 trillion, driven largely by favorable Central Bank of Nigeria (CBN) policies.
The main drivers of these gains are the liberalization of the foreign exchange market and the CBN’s hawkish interest rate regime. The monetary policy rate (MPR) currently stands at 27.25%, leading to a 141.75% year-on-year increase in banks' interest income. However, these developments have stifled borrowing, with banks’ credit exposure to the private sector declining by 4.2%, limiting access to loans for businesses.
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While banks are benefiting from high interest margins and revaluation gains, analysts warn that the economic consequences are dire. Manufacturing and other key sectors face higher costs of credit and operating expenses, squeezing profits and stifling growth. The reduction in credit to the private sector has also led to concerns about the potential for business closures, job losses, and slowed economic growth.
Analysts emphasize the need for a balance between high interest rates and economic growth to ensure long-term sustainability. Without such adjustments, the Nigerian economy could face further contraction, despite the impressive profit margins in the banking sector.
