Finance & EconomyNews

Low interest rate has hampered banks’ earnings

The current interest rate regime has hampered the expected interest earnings of commercial banks.

The Central Bank of Nigeria has maintained a dovish monetary policy since the hit of the covid-19 in 2020, keeping the benchmark interest rate (MPR) at 11.5% since September 2020 despite growing inflationary pressure.

A cursory look at their financials shows that the likes of GT Bank and Stanbic IBTC recorded a decline in their interest income.Also, Sterling Bank, Zenith and Union Bank could barely outperform their previous year record in terms of interest income, while Access Bank, Fidelity, UBA, and Unity Bank recorded over 10% increase in their interest top line.

The low interest rate by the apex bank means that customers can have more access to loans from banks at a low rate, which in turn has an impact on the revenue of the commercial banks. Considering that interest income constitutes a significant portion of the revenue basket of most commercial banks, it also affected the profitability of the banks.

However, it is worth noting that the policy of the Central Bank to keep interest rates low has spurred noticeable growth in the real sector. Although, the growing inflationary pressure has given the MPC something to worry about. This could be seen in the last meeting where, as against a usual unanimous decision by the members, it took a majority vote of six members to hold the parameters.

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