Zenith Bank’s Profit Doubles Amid Central Bank Rate Hikes and Strategic Trading Gains

Zenith Bank’s Profit Doubles Amid Central Bank Rate Hikes and Strategic Trading Gains

Zenith Bank’s Half-Year Net Profit Soars as Interest Rate Hikes and Trading Gains Drive Growth

Zenith Bank, Nigeria’s second-largest lender by market value, reported a remarkable surge in net profit for the first half of this year, nearly doubling its earnings from the same period last year, according to its audited financial records. This substantial growth is attributed to sharp increases in the lending rate introduced by the Central Bank of Nigeria (CBN) earlier this year, as part of its strategy to curb inflation.

The bank’s interest and similar income skyrocketed by 176.7% to N1.1 trillion, representing over half of the total revenue generated during this period. Even after accounting for interest expenses, Zenith Bank’s net interest income still reached an impressive N715.1 billion, up from N261.9 billion in the previous year.

The CBN’s aggressive monetary policy, which raised borrowing costs by 800 basis points in an effort to tame inflation, played a significant role in boosting the bank’s earnings. This rate hike has been one of the longest rounds of tightening on record in Nigeria, aimed at addressing the inflationary pressures that have contributed to a cost-of-living crisis in the country.

Zenith Bank’s provision for impairment of financial and non-financial instruments nearly doubled to N415.3 billion, driven by an increase in the funds set aside to cover delinquent loans that are unlikely to be repaid.

A key factor in Zenith Bank’s growth was the substantial trading gains, which soared to N795.6 billion from N103 billion, fueled by a significant increase in the value of its financial instruments. However, the foreign exchange revaluation gain, which had significantly boosted the bank’s revenue last year, saw only a modest increase of 3.3% this year.

The depreciation of the naira by approximately 70% between last June and the beginning of this year led to a spike in the exchange rate for dollars, creating lucrative opportunities for banks with investments in foreign currency assets. By converting these securities into naira, banks like Zenith have been able to capitalize on these gains.

However, this windfall has not gone unnoticed by the government. In July, President Bola Tinubu proposed a bill to the Senate, seeking approval for a one-off tax of 50% on banks’ foreign exchange revaluation gains. The Senate, however, pushed for a more substantial 70% cut, a move that has raised concerns among ratings agencies and financial consultancies, who warn that it could strain the financial stability of banks.

Zenith Bank’s financial performance in the first half of this year underscores the impact of monetary policy on the banking sector and highlights the ongoing tensions between financial institutions and the government over windfall profits.

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