High Interest Rate Positive for Nigerian Banks -Analysts
Monetary policy tightening is expected to have positive impacts on Nigerian banks’ earnings performance in the financial year 2023.
The positive expectation is anchored on the fact that banks’ net interest rate margin will be strengthened as a result of an upward shift in money pricing.
In their separate results, net interest margin improved when compared with the prior period despite macroeconomic uncertainties, and banks’ earnings remain sturdy with potential for growth.
While banks are seen as beneficiaries of the monetary policy hawkish pose, analysts feel higher lending rates will have unintended consequences on the local economy.
Costs of production is expected to shift upward while manufacturers battle high energy costs, increase prices of raw materials and possible foreign exchange losses among others.
Banks are not also totally excuse from the downside as borrowers have a choice. However, there are alternative money-spinning avenues; including investment in government securities and overdraft lending.
Possibility of job losses increase in a high-interest rate environment, analysts told MarketForces Africa while noting that it is unlikely to impact wage rate significantly.
The Central Bank of Nigeria’s policy committee halted its extended dovish stance in May 2022 as the inflation rate continues to rise. The headline inflation rate printed at 21.91% in February following the naira redesign policy somersault.
In the first quarter of 2023, local banks’ earnings performance is expected to feel the impacts of the naira crisis. Some banks have started guiding lower profitability in the period following pressures of the naira redesign policy on operations since the beginning of the year.
In a report, Moody’s Investors Services said the rate hike will likely translate to increased net interest margins for banks, benefiting their bottom-line profit, notwithstanding Nigeria’s difficult economic and operating conditions.
In January, Moody’s downgraded the long-term ratings of nine Nigerian banks, saying the decision reflected a combination of a weakening operating environment, the interlinkages between Nigeria’s weak creditworthiness and the banks’ balance sheets, given the banks’ significant holdings of sovereign debt securities. #High Interest Rate Positive for Nigerian Banks -Analysts
