(Bloomberg) -- Nigeria’s biggest banks’ share prices are set to rally after record high interest rates boosted profits, according to brokers.
An unprecedented increase in the central bank’s key rate over five policy meetings to 27.25% from 18.75% at the start of the year, to curb inflation and stop a rout in the naira, has fueled a boom in net interest income. Record yields on fixed-income securities, mainly taken up by banks, have also contributed.
Over the past two weeks, the country’s four largest banks by market value — Guaranty Trust Holding Co., Zenith Bank Plc, United Bank for Africa Plc and FBN Holdings Plc — all reported that net interest income had more than doubled.
The bonanza could see Guaranty Trust’s share price rise almost 11% this year to 59.44 naira from yesterday’s close and Zenith’s 42% to 56.77, said Lagos-based CSL Stockbrokers. FBNQuest said it expects Guaranty Trust to outperform and is revising its estimates.
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Net interest income could get a further boost from another increase in interest rates.
Monetary policymakers will likely raise rates at their final meeting of the year on Nov. 26, according to Yvonne Mhango, Africa Economist for Bloomberg Economics. That is as inflation, which reignited in September to 32.7% from 32.2% a month earlier, is expected to continue to quicken, she said.
Previously, successive devaluations in the naira helped drive banks’ profits as they converted dollar assets to the weaker domestic currency. That led the government in July to announce a 70% windfall tax on foreign-exchange gains.
The NGX Banking Index, which measures the nation’s biggest lenders was up 1.1% as at 2.19 p.m. in Lagos, extending the year’s gains to 11%.
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