In spite of the economic gloom and hardships Nigerians are facing, banks in the country have earned a lot and made huge profits.

The increase in their earnings comes amidst a major decline in banks’ credit to the private sector, the engine of growth in an economy.

According to findings by the Financial Vanguard, 11 leading deposit money banks in the country have for the first half of 2024, increased their gross earnings by 131.9 percent to N11.7trillion from N5.5 trillion in the same period of last year, H1’23.

Similarly, their Profit Before Tax, PBT, rose to N3.7trillion, a 101.9 percent increase compared to N1.83 trillion recorded in the corresponding period in 2023.

The banks have now moved from foreign exchange windfall to interest rate windfall, reaping huge benefits from the two key policies of the Central Bank of Nigeria, CBN, in the past one year.

The policies are liberalization of the foreign exchange market and a hawkish interest rate regime.

The forex policy had given the banks over N10 trillion profit in terms of what the industry calls exchange rate revaluation gains, while the latest windfall is coming from the frequent hike in the Monetary Policy Rate, MPR, by the Monetary Policy Committee, MPC, of the apex bank since last quarter of 2023.

The MPR policy created about 1000 basis points raise in effective interest rate in the money market following CBN’s massive application of inflation targeting as strategy to battle inflation which had peaked at 34.2 percent in June 2024.

Currently the MPR stands at 27.25 following the latest raise two weeks ago, a development which has equally skyrocketed lending rates in banks while stifling borrowers who rely on bank loans to sustain their businesses.

MPR is the benchmark interest rate upon which other interest rates in the money market are built.

Following the steady rise in the MPR, deposit money banks have been marking up their lending rates far higher than the raise in their deposit rates.

Consequently, the interest income for the lenders surged to N6.9 trillion, indicating a 141.75% Year-on-Year (YoY) increase from N2.8 trillion in the same period in 2023.

The downside of the markup in the banks’ lending rate was, however, higher cost of funds and reduced credit advanced by the lenders during the period with their credit exposure to the private sector declining by 4.2% to N73.2trillion from N76.5trillion in January 2024, according to the CBN’s latest credit and money report.

Analysts and experts have opined that while banks are making huge profit and reducing credits to the private sector, the manufacturing companies and other major sub-sectors of the economy are faced with severe challenges like high cost of credit, operating expenses such as imported raw materials and equipment due to the weaker naira, squeezing profit margins and escalating production costs.

The banks analysed in the report are Zenith Bank, Access Bank, Guaranty Trust Company, GTCo, Plc, FBN Holdings, United Bank for Africa, UBA, Plc and Ecobank Transnational Incorporated, ETI, Plc.

Others are Wema Bank Plc, Sterling Bank Plc, Union Bank Plc, FCMB Group Plc and Stanbic IBTC Holdings Plc.