Market News

 By : Helen Oji

•Stronger naira, lower interest rates may affect 2025 profitability

Despite prevailing macroeconomic challenges, the top five Nigerian banks have posted a combined profit before tax (PBT) of N5.1 trillion for the 2024 financial year, a 59.4 per cent increase from N3.2 trillion recorded in 2023.

The top five banks – First HoldCo, United Bank for Africa (UBA), GTCO, Access Holdings and Zenith Bank –achieved pre-tax profit of N5.1 trillion, largely driven by high interest rate earnings, foreign exchange revaluation gains and strong non-interest income growth.

Data from their financial statements also showed that the five tier-1 banks’ pretax earnings rose from N1.1 trillion in 2022 to N3.2 trillion in 2023, indicating the banks’ ability to adapt and thrive in a dynamic economic environment.

Besides, the combined gross earnings of the top five lenders rose from N9.6 trillion in 2023 to N17.3 trillion last year, representing an increase of 80 per cent.

Zenith Bank emerged at the top with a pre-tax profit of N1.32 trillion, reflecting a solid 67 per cent increase from N796 billion recorded in 2023. GTCO followed closely, posting a 107.8 per cent surge in pre-tax profit to N1.266 trillion, up from N609 billion the previous year.

Access Corp and UBA also posted strong performances, with pre-tax profits of N867 billion and N803.7 billion, respectively, surpassing their 2023 figures of N729 billion and N757.6 billion.

First HoldCo also recorded a 124 per cent leap in pre-tax profit, from N347.9 billion in 2023 to N781.9 billion in the previous year.

Operators believed that the resilience demonstrated by the banking sector is not only a testament to the adaptability of financial institutions but also an indication of future opportunities, especially for investors eyeing stable returns.

Although they argued that with interest rates expected to moderate and the naira projected to strengthen with reduced volatility, the banks’ profit margins could come under pressure this year.

However, the experts remained bullish on the sector, noting that banks with robust loan book growth and strong non-interest income strategies, especially those capitalising on trading activities, will likely remain attractive to investors.

Research analyst at Cowry Asset Management Limited, Charles Abuede, said Nigerian banks’ performance in the full year 2024 offers a positive signal for what lies ahead in 2025.

According to him, the strong topline and bottom-line growth recorded by most banks came despite prevailing regulatory and economic challenges, reflecting the sector’s strategic resilience. He attributed the surge in bank earnings primarily to expanded topline revenues and efficient treasury portfolio management, especially trading gains amid market volatility.

“The banks have consistently delivered stellar performances year after year, and 2024 was no exception. This time, high interest rates and currency fluctuations worked to their advantage.

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“Also, the Central Bank of Nigeria’s decision to raise the Cash Reserve Ratio (CRR) to 50% forced banks to think creatively about liquidity management, leading many to issue short-term commercial papers as alternative funding sources,” he said.

The dynamics, Abuede explained, led to significant growth in customer deposits, loan portfolios and non-interest income streams, bolstered by elevated interest rates and windfall profits.

Abuede added that if the CBN pivots toward monetary easing in 2025 to support economic growth, as many analysts expect, the sector could experience slight margin compression.

“But even with tighter margins, we anticipate that the banks will still deliver respectable topline growth and profits,” he said.

An investment banker and stockbroker, Tajudeen Olayinka, said the 2024 year-end results confirm the banking sector’s inherent strength and its ability to thrive even in challenging economic times.

“Banks have shown they can perform under any condition, whether it is high inflation or slower GDP growth. This is because banking fundamentally revolves around liability generation and asset creation, making it a portfolio of opportunities in any economy,” he said.

Olayinka believed the sustainability of the strong performance is hinged on the continuity or expansion of economic opportunities.

Given the banks’ history of navigating headwinds and exploiting profitable avenues, he remains confident that the sector will maintain its momentum, especially if macroeconomic reforms begin to yield results.

Managing Director of Arthur Steven Asset Management Limited, Tunde Amolegbe, said the high interest rate environment naturally favours the banking industry.

“What we are seeing now is in line with expectations, banks tend to do very well when interest rates are elevated,” he noted.

He also pointed to the sector’s growing investment in digital and electronic banking as another revenue driver, especially through increased retail banking penetration.

“Most banks have recently raised substantial Tier-1 capital, which has expanded their total assets and positioned them to finance more profitable ventures,” Amolegbe said.

While acknowledging potential threats such as narrowing margins or policy risks, he maintained that as long as interest rates remain relatively high, the outlook for banks remains solid.