Market News

The banks insist that the high-interest regime is not the only reason for their profitability.

Five among Nigeria’s top 10 banks reported combined record pre- tax profits of N4.6trn, a 70% in- crease from the previous year, with Zenith Bank and Guaranty Trust Bank’s holding companies crossing the trillion-naira mark for the first time.

The main driver for the profits was a surge in the banks’ interest income, largely on the back of the Central Bank of Nigeria’s rate hikes all through 2024. As inflation surged to three-decade summits following the devaluation of the local cur- rency and the slashing of fuel subsidies, the central bank responded with several rate hikes that brought the benchmark interest rate to a record 27.5%.

Zenith Bank’s pre-tax profit of 1.32trn naira ($825m), a 66% jump from the pre- vious year, was due mainly to its doubling of interest income to 2.7trn naira in 2024 as it took advantage of higher lending rates. During the year, the value of its assets increased to 29.9trn naira from 20.4trn naira in the preceding year. The bank said it also benefitted from the re- vamp of its banking software that unified its services across different countries.

Guaranty Trust Bank also gave credit to the efficient use of its assets for its great- ly improved performance that returned a pre-tax profit of 1.27trn naira ($794m), a more than twofold increase from the year before. The value of its assets increased to 14.8trn naira from 9.7trn naira.

Similar, though slightly smaller, profit trends were recorded by other top banks such as United Bank for Africa (UBA), FirstBank and Stanbic IBTC Bank. UBA recorded the fastest growth in asset value, which surged to 30trn naira in 2024 from 20.06trn naira a year before. Altogether, these five banks account for about 60% of Nigeria’s banking industry.

Another giant of the sector, Access Bank Group, the largest bank in Nigeria by assets, was yet to publish its annual results at the time of filing this report, but was generally expected to replicate the trend. In a 9 April notice to the Nigerian Exchange, the bank said the results would now be released on or before 20 April.

Having performed so strongly, the banks are recommending sizeable divi- dend payouts to their shareholders. Among those to have declared dividends, Guaranty Trust Bank has so far offered the highest at 7.03 naira, bringing its to- tal dividend payment for the year to 8.03 naira per share, more than double the payment of 3.20 naira per share in 2023. UBA plans a total dividend payment of 5 naira per share including a final divi- dend payment of 3 naira. Stanbic IBTC has tabled a dividend payment of 3 naira for every share, up 36% from the 2023 financial year.

Unlike in 2023, when profits were boosted by foreign exchange windfalls due to the massive devaluation of the naira, the latest results were derived mainly from routine banking operations amid prevailing high interest rates. Even then, the jumbo profits have raised eyebrows at a time when store shelves are half-empty and consumer spending has been slashed by inflation and pressured income.

While several sectors of the economy (particularly manufacturing and agricul- ture) have suffered from the harsh eco- nomic reforms, naira devaluation and improved tax revenues have left the fed- eral, state and local governments awash with cash.

“They don’t keep their money, it is the banks that keep the money for them,” Mudashiru Yusuf of the Lagos-based Cen- tre for Promotion of Private Enterprises told reporters recently. “Banks benefit from such transactions.”

Other critics have blamed the govern- ment for implementing reforms that mint easy money for the banks while aban- doning manufacturing, agriculture and industry to a difficult fate. “Simply buying government Treasury bills with custom- ers’ deposits was enough for the banks to return profit with yields reaching 25%,” said Chike Osigwe, an Abuja-based market analyst. “In addition, they had the op- portunity to charge equally high lending rates while paying much less for customer deposits.”

The banks insist that the current high- interest regime is not the only explanation for their profitability. The big banks have benefitted from the diversification of their business, especially by establishing for- eign branches across Africa and beyond.

“Our highly diversified global network allows UBA to deliver high-quality, con- sistent earnings,” said Oliver Alawuba, the group’s chief executive officer in a recent investor call. “Our ex-Nigeria rest of Af- rica and international operations have expanded significantly over the past five years, now contributing 51.7% of group revenue, up from 31% in 2019.”

There are moves afoot to upgrade the bank’s level of business authorisation in France, while also seeking footholds in other strategic markets abroad.

Other Nigerian lenders that joined the race across African borders two decades ago are also finding the move a useful bulwark against vulnerabilities at home. The FirstBank Group currently operates in West and Central Africa, including Ghana, Guinea, Sierra Leone, Gambia and Sen- egal. Access Bank has maintained a strong presence across West, East and South- ern Africa as well as in the UK. Guaranty Trust Bank is more concentrated in West Africa but also has subsidiaries in East Africa and the UK.

Emerging from a significantly profit- able earnings season, there is widespread industry optimism that most, if not all, of the banks, will meet the central bank’s new minimum capital requirements for different categories of lenders by the March 2026 deadline.

With the old capital base severely erod- ed by naira depreciation and inflation, the monetary authorities mandated the banks to adhere to new minimum capital re- quirements. The top-tier banks with both domestic and international operations are now required to have a minimum capi- tal of 500bn naira. Those with national operations only will need 200bn naira while those limited to regional operations as well as merchant banks, will require a minimum capital of 50bn naira. Non-interest lenders need a minimum capital of 20bn naira if operating nationally, and 10bn naira if doing so regionally.

The top banks have been quick off their marks in raising new capital. Ac- cess Bank’s holding company and Zenith Bank have already raised enough funds to meet the 500bn requirement. FirstBank had an oversubscribed rights issue that brought in 187.6bn naira and now plans a 350bn naira private placement to meet the new requirements.

Among the mid-sized lenders such as First City Monument Bank and Fidel- ity Bank, there is a slightly longer road to travel to meet the capital conditions. Both already went through initial capital- raising efforts, and with current inves- tor appetite, analysts, including those at rating agency Fitch, expect subsequent efforts to be successful. Other banks that fall within the same category, such as Ecobank Nigeria and non-interest Jaiz Bank, have already met the capital re- quirements.

Fitch, the rating agency, sees almost all the top-tier and second-tier banks raising enough capital without resorting to con- solidation. Among the third-tier banks, such consolidation, taking the form of mergers or acquisitions, is more likely, the agency said in a recent commentary on the Nigerian banking industry.

“Nigerian banks are making signifi- cant progress in raising core capital to meet new paid-in capital requirements and are generally on track to meet the deadline,” Fitch said. “It also reduces the likelihood of significant banking sector consolidation.”

The profitability of Nigerian banks in recent years appears to be stirring the attention of international inves- tors. Last October, Jamie Dimon, the CEO of JPMorgan Chase, the world’s biggest bank, visited Nigeria and met with Central Bank of Nigeria Governor Olayemi Cardoso and his team as part of an African tour that also took him to Kenya and South Africa. Dimon made it clear it was an exploratory visit, a precursor for the bank’s planned African expansion.

The latest report is that JPMorgan Chase has applied for a Nigerian mer- chant banking licence. The representative office which has operated in Lagos since the 1980s, providing wealth management advisory services, will now offer full in- vestment banking services, if approved. “That move by JPMorgan is a signifi- cant vote of confidence on the Nigerian banking industry,” said market analyst Osigwe. n

The banks insist that the high-interest regime is not the only reason for their profitability. The big banks have benefitted from diversification, especially by establishing foreign branches across Africa and beyond.