Nigerian banks have reported the highest half-year profit in seven years despite limited cash and other challenges.
The top-five tier-1 lenders reported a combined 113.18 percent growth in their half-year profit to N371.1 billion in June 2021 from N174.08 billion in 2014.
The profit reported by the lenders in the first six months of this year is 5.12 percent higher when compared with the N353.02 billion recorded in the corresponding period of 2020.
The performance was largely driven by a 15.4 percent increase in net interest income. The five lenders reported a net interest income of N757 billion in 2021, N101 billion more than the N656 billion reported in the corresponding period of 2020.
Meanwhile, the majority of the lenders’ income was obtained from account maintenance and electronic products. Nigeria’s five biggest lenders attracted N48.91 billion from account maintenance fees, N16.6 billion more than the N32.31 billion it reported in June 2020. Income from fees charged on electronic products increased by N24.97 billion to N83 billion in June 2021, from N58.03 billion in the same period of 2020.
Nigerian lenders have not been without challenges, as the record-high cash reserve requirement (CRR) of 27.5 percent by the Central Bank of Nigeria (CBN) is cribbing profitability, according to market analysts.
The CRR is the amount the CBN debits from banks’ accounts in compliance with its monetary policy objective of mandatorily keeping cash on behalf of banks. The amount is not available for banks to use.
In a quest to moderate inflation amid efforts to maintain a stable exchange rate, the Monetary Policy Committee (MPC) of the CBN increased CRR and standardised it to 27.5 percent for both merchant and commercial banks. The standardised CRR was implemented alongside discretionary deductions.
According to Agusto & Co.’s flagship 2021 Banking Industry Report, the industry’s restricted cash reserves exceeded N9.5 trillion in 2020 and translated to an effective CRR of 37 percent.
“We believe the elevated CRR level moderated the industry’s performance and liquidity position during the year under review,” research analysts at the Lagos-based credit rating agency said.
It is noteworthy that Nigeria has the highest reserve requirement in sub-Saharan Africa. South Africa, Kenya, and Ghana all have CRRs of below 10 percent.
Among other factors, the policy by the central bank that requires banks to keep the cash they could have used to grow their bottom line with the regulator may have also affected investors’ appetite for the stocks of the Nigerian banks.
A recent report by Bloomberg revealed that Nigerian banks are some of the cheapest stocks in Africa.
Four of the five African stocks with the lowest price-earnings ratios among companies valued at $500 million or more are Nigerian lenders, data compiled by Bloomberg show: United Bank for Africa plc, Access Bank Plc, FBN Holdings Plc, and Zenith Bank Plc. Johannesburg-traded steelmaker ArcelorMittal South Africa Limited completes the quintet.
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