The Business NG - October 11, 2024

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Nigeria's Banks Face Profit Squeeze as MPR, CRR Hike Bites


The Central Bank of Nigeria's recent decision to raise the Monetary Policy Rate (MPR) by 50 basis points to 27.25% and increase the cash reserve ratio (CRR) for banks from 45% to 50% has sparked concerns about the impact on banks' Non-Performing Loans (NPL) and profitability.

The move aims to combat inflation, but it may also lead to higher borrowing costs, increased loan defaults, and reduced financial intermediation. The manufacturing, oil & gas, and commerce sectors were responsible for the majority of Nigeria's top 10 banks' estimated N1.6 trillion Non-Performing Loans (NPL) in the 2023 financial year.

The NPLs of the 10 banks went up by 65% from N964.36 billion in 2022 to N1.6 trillion in 2023. The Federal Government is set to collect N614.9 billion from nine Nigerian banks on a one-time windfall tax from their foreign currency revaluation gains for the financial period, December 2023.

Analysts believe that the policy steps will have grave implications in an economy where businesses are already struggling with high energy, logistics, and operating costs compounded by declining purchasing power. The National President of the Association of Small Business Owners of Nigeria, Dr. Femi Egbesola, stated that the latest MPR hike will push up the cost of doing business, ultimately affecting the cost of goods and services