- Analysts raise concerns over limited trickle-down to real economy
Onome Amuge
Nigeria’s FUGAZ banks – First HoldCo Plc, UBA, GTCO, Access Holdings, and Zenith Bank – delivered another year of robust profit growth, as revealed in their full-year 2024 results. Notably, the combined gross earnings of these five largest lenders by capitalisation rose 57.6 per cent to N17.423 trillion, a significant jump from the N9.633 trillion recorded in the previous year. The strong performance was largely fueled by the Central Bank of Nigeria’s (CBN) high interest rate environment, a measure implemented to combat the country’s persistent inflation.
A deeper assessment of the financials highlights distinct performances across key metrics as the tier-1 institutions strive to meet the CBN’s recapitalisation mandate of N500 billion minimum capital base, a move aimed at boosting the financial system and supporting Nigeria’s aspiration of achieving a $1 trillion economy by 2030.
Access Holdings claims top spot for gross income
Access Holdings emerged as the frontrunner in terms of gross income in the period under review, reporting N4.878 trillion, marking an 88 per cent year-on-year expansion. Zenith Bank followed closely with N3.971 trillion, representing an 86.28 per cent increase. FBN Holdings recorded N3.213 trillion, the highest growth rate among the group at 105.75 per cent. GTCO posted N2.148 trillion (up 81.07 per cent), while UBA reported gross earnings of N2.3 trillion.
Zenith Bank leads in pre-tax profitability
Zenith Bank took the lead in pre-tax profit, reporting a record N1.32 trillion, a 66.6 per cent increase year-on-year. GTCO was a close second with a pre-tax profit of N1.266 trillion, showcasing the most substantial percentage growth within the FUGAZ group at 107.82 per cent. Access Holdings recorded N867.019 billion (up 18.93 per cent), while UBA posted N803.7 billion, a 6.08 per cent rise. FBN Holdings reported N781.88 billion, registering the highest percentage appreciation in pre-tax profit at 124.77 per cent.
Zenith, GTCO contest for post-tax profit crown
The battle for post-tax profitability was tightly contested, with Zenith Bank narrowly surpassing GTCO, reporting N1.033 trillion, a 52.59 per cent increase. GTCO followed closely with N1.017 trillion, marking an 88.4 per cent rise. UBA achieved its highest ever annual post-tax profit of N766.5 billion, a 26.14 per cent increase. Access Holdings posted N642.22 billion (up 3.7 per cent), while FBN Holdings recorded a 115.12 per cent jump to N663.490 billion.
High interest rates fuel Zenith Bank’s interest income dominance
Zenith Bank led the pack in interest income with N2.721 trillion, a remarkable 137.74 per cent year-on-year increase, benefiting significantly from the high interest rate environment. Access Holdings followed with N3.480 trillion in gross interest income, while FBN Holdings reported N2.397 trillion (up 155.95 per cent). UBA recorded N2.3 trillion in interest income, a 120.40 per cent rise, with a notable portion derived from investment securities. GTCO posted N1.342 trillion in interest income, a 143.63 per cent increase.
The strong performance in interest income across all FUGAZ banks indicates the positive impact of the CBN’s monetary policy. However, the differing proportions of interest income derived from loans versus investment securities showcased varying risk appetites and strategic approaches to lending within Nigeria’s leading banking institutions.
Beyond balance sheets: Analysts question banks’ role in Nigeria’s real economy
While Nigerian banks, particularly the FUGAZ cohort, continue to report remarkable financial results, a growing chorus of analysts argue that the focus has become narrowly fixated on year-on-year balance sheet comparisons and dividend payouts, potentially overshadowing the sector’s crucial role in fostering broader economic development. Critics contend that the substantial profits being declared are not translating into sufficient funding and support for the real economy, specifically the manufacturing and agricultural sectors, which remain the largest employers of labour in the country.
Olajide Oyadeji, a financial sector economist, highlighted in his publication, “Financial development, real sector, and economic growth in Nigeria,” a concerning disconnect between the financial sector and the real economy. His research suggests that the financial sector is not adequately channeling funds to enable the real sector’s growth, indicating a potential negative short-term impact without any significant long-term benefit.
Femi Akintunde, CEO of Alpha Mead Group, echoed this sentiment, arguing that the hefty profits announced by banks might inadvertently be hindering the growth of other vital sectors. “Banks are meant to provide funding that will help the economy to grow,” Akintunde stated, “but here in Nigeria, the interest rates being charged on loans are driving many companies out of business. SMEs are dying, multinational companies are leaving the country in droves due to harsh economic conditions,” he asserted.
On the other hand, Kunle Ezun, a research economist in one of the leading Nigerian financial institutions, offered a counter-perspective, suggesting that the banks themselves are not solely to blame for the real sector’s sluggish growth. He argued that deposit money banks (DMBs) have a responsibility to their stakeholders – shareholders, employees, and creditors – to deliver consistent returns. “The DMBs are not in the charity business,” he asserted.
Ezun posited that a genuine paradigm shift requires deliberate policy interventions from economic managers. He called for the creation of incentives aimed at boosting the productivity of the real sector, including a favourable business environment that supports credit creation and collection, skills development, and effective pricing and marketing mechanisms. Without such measures, he argued, banks will naturally gravitate towards lower-risk, higher-return options, such as investment in government securities.
Oliver Alawuba, group managing director/chief executive of UBA and Chairman of the Body of Banks’ CEOs in Nigeria, acknowledged the need for a stronger connection between the financial sector and the real economy during a recent CBN seminar.
While emphasising the banking sector’s commitment to the CBN’s recapitalisation drive towards a $1 trillion economy, Alawuba called for specific policy support to incentivize long-term lending. He proposed tax breaks for banks funding infrastructure and mining, mirroring practices in Brazil and China. In addition, he suggested tax incentives for recapitalisation-linked investments and partial Cash Reserve Ratio (CRR) refunds tied to infrastructure financing.
Alawuba stressed that achieving a $1 trillion economy requires decisive action, bold reforms, and visionary leadership, underpinned by consistent policies that boost investor confidence, effective regulation that encourages innovation, strategic public-private partnerships, and a well-informed press. He stressed that the financial sector’s effectiveness in mobilising capital, supporting critical infrastructure, strengthening the real sector, and accelerating digital transformation will be crucial in defining the path forward.
He further noted that Nigeria’s banking sector remains undercapitalised and under-leveraged and needs to increase its asset base relative to GDP to achieve global competitiveness.
Alawuba highlighted the capacity of Nigerian banks to fund large-scale infrastructure projects but also pointed to regulatory and policy constraints, financial accessibility, global headwinds, infrastructure deficits, global competition, foreign exchange volatility, and governance frameworks as key challenges in realising the $1 trillion ambition.
