Nigeria's Top Bank Stocks Set for Gains Amid High Interest Rates
TLDR
- Nigeria's largest banks poised for stock rally due to record-high interest rates and increased net interest income.
- Central Bank of Nigeria's policy rate surge from 18.75% to 27.25% aimed at curbing inflation and stabilizing the naira.
- Guaranty Trust Holding, Zenith Bank, United Bank for Africa, and FBN Holdings anticipate significant growth in net interest income, with expectations of share price increases.
Nigeria's largest banks are poised for a stock rally as record-high interest rates drive profits. A significant rise in the Central Bank of Nigeria’s policy rate—from 18.75% to 27.25% over five meetings this year—aims to curb inflation and stabilize the naira. This rate surge has fueled a sharp increase in net interest income for banks, which benefit from high yields on fixed-income securities.
Over the past two weeks, Nigeria’s four biggest banks by market cap—Guaranty Trust Holding, Zenith Bank, United Bank for Africa, and FBN Holdings—reported more than doubling their net interest income.
Brokers expect Guaranty Trust’s shares to rise nearly 11% and Zenith's by 42% this year, with FBNQuest revising its estimates in favor of Guaranty Trust. Further rate hikes could boost net interest income further. Economists predict another increase on November 26, as inflation, rising to 32.7% in September, is expected to climb.
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Key Takeaways
Nigeria's banking sector gains are largely attributed to rising interest rates amid a high inflation environment, attracting investors seeking returns in banking stocks. Elevated rates have made fixed-income investments more lucrative for banks, lifting net interest income—a key profit driver. However, banks have also benefited from successive naira devaluations, converting dollar-denominated assets to a weaker domestic currency and adding to profits. The government imposed a 70% windfall tax on foreign exchange gains in July, aiming to capture revenue from these currency fluctuations. The NGX Banking Index, tracking Nigeria’s biggest banks, has seen an 11% gain in the year. Investors are closely watching the November 26 policy meeting, where another rate hike could further enhance the profitability outlook for Nigeria’s banking sector.
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