Continued Hike in Interest Rates May Force Nigerian Banks into Expansion

By Adedapo Adesanya 

Amid the continuous tightening of the interest rate benchmark by the Central Bank of Nigeria (CBN), there have been predictions that more Nigerian banks will have to pursue cross-border expansion.

The latest was put forward by Mr Johnson Chukwu, CEO of Cowry Asset Management, who noted that Nigeria’s continuous hawkish monetary policy would see more Nigerian local lenders find footing in other climes with favourable interest rates. 

He made this disclosure at a recent Cowry Asset Management virtual webinar themed Nigeria’s Economic Landscape.

He explained that the cumulative 6.5 per cent increase in the benchmark interest rate would encourage Nigerian banks to expand into other African markets by increasing lending yields and reducing banks’ net interest margins.

“We project more Nigerian banks to adopt cross-border expansion and benefit through risk diversification and greater profit opportunities for shareholders,” he said.

He claims that the adoption of Holdco structures by many local lenders will aid in smothering the rising fintech competition through the creation of new fintech products or by collaborations with and investments in other businesses that are developing goods.

Recall that the likes of Access Bank and GTCO already have this structure in place.

He added, “The transition to Holdco structures will give Nigerian banks more leverage to diversify their earnings in the face of the present tight monetary policy regime, thus enhancing their topline. Zenith Bank and Sterling Bank recently got approvals in principle to convert to Holdcos, following FBN Holdings, Stanbic IBTC Holdings, FCMB Group, and GTCO as NGX-listed banks, who currently operate Holdco structures.”

“So far, the banking sector recorded a positive year-to-date performance of 8.50 per cent. An example of diversification from Nigerian risks through non-Nigerian operations can be seen with the United Bank for Africa. Sixty-three per cent of contributions to UBA’s profit before tax came from African operations in 21 countries,” he explained.

Mr Chukwu continued by stating that the expansion of electronic transactions and other payment options had caused a boom in the banking industry.

Business Post had reported that at the 290th Monetary Policy Committee (MPC) Meeting in March, CBN Governor, Mr Godwin Emefiele announced a further benchmark lending rate increase to 18 per cent to cushion the nation’s inflationary pressure.

At the beginning of the year, the MPC raised the rate from 16.5 per cent to 17.5 per cent in a sustained push to control inflation and ease pressure on the Naira.