Firm projects higher interest income, increased earnings for banks

THE Group Managing Director (GMD) of Cowry Asset Management, Johnson Chukwu, has said that rising interest rates, expected to persist till the end of the year, might benefit the banking sector through higher interest income and increased earnings.

Chukwu, who is the founder of Cowry Asset Management, said this at the company’s Nigerian Economic Report Card (third quarter review) held on Wednesday.

He said, “Strained purchasing power and the rising cost of doing business will depress both the topline and the bottom-line, though the banks might benefit from rising interest rates.”

Interest rates are projected to remain elevated for the rest of 2022, thereby suppressing corporate valuations, Chukwu noted.

According to the Cowry Asset boss, while the company anticipates a rise in interest-earning activities in the third quarter and going forward, it also projects a positive perspective for the banks in the end of year run-in amidst shrinking earnings and profitability of corporate entities.

He said, “Given the decline in capital importation, forex scarcity, accelerating inflation and worsening debt positions, persistent insecurity challenges, we view the Nigerian economy to require impactful policies to improve its performance going forward.”

In a bid to tame teeming inflation, central banks across the world are raising rates at unprecedented levels and intervening in their currency markets.

In the same vein, the Central Bank of Nigeria (CBN) had at its last Monetary Policy Committee (MPC) meeting in September, raised interest rate to 15.5 per cent for the third consecutive time this year.

The Cowry Asset GMD said, “Hike in MPR and CRR (15.5 per cent and 32.5 per cent respectively) by the MPC, may lead to higher interest income and increased earnings.

“We must also note that soaring interest rates are providing investors with attractive alternatives to stocks.”

The banking industry has returned a negative performance to 379.2 basis points as at September 30, from 406.07 basis points as at January 4, depreciating by -6.62 per cent year-to-date (YtD), and lagging behind other sectors, Chukwu pointed out.

He, however, said, “Given adverse operating conditions currently observed, there will be a higher proportion of non-performing loans (NPLs) in the banking sector.”

The baseline forecast for 2023 is highly uncertain, most forward-looking indicators suggest a further slowdown in global growth, Chukwu added.

 

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