Bank stocks gain by most in 3 months af­ter CBN slashes in­ter­est rate on de­posits


Nige r ian bank stocks gained by the most in three months Tues­day af­ter the Cen­tral Bank of Nige­ria (CBN) re­duced the in­ter­est rate on sav­ings de­posits to a min­i­mum of 1.25 per­cent per an­num from 3.75 per­cent.

The rat e re­duc­tion which be­came ef­fec­tive to­day (Sept.1) is ex­pected to trans­late to in­creased prof­itabil­ity for banks as it re­duces their cost of funds.

It means they can save money that would have gone into pay­ing higher in­ter­est on sav­ings de­posits. Banks with al­ready low cost of funds like Guar­anty Trust Bank and Zenith Bank, are how­ever ex­pected to ben­e­fit the least from the new di­rec­tive.

The bank­ing in­dex, which tracks the share price move­ment of pub­licly listed banks in Nige­ria, was up 1.25 per­cent, with the big banks gain­ing the most in three months, ac­cord­ing to data from the Nige­rian Stock Ex­change (NSE).

Ecobank gained the most with a 6.4 per­cent gain Tues­day, the big­gest jump in three months.

United Bank for Africa (UBA) was also up 4.8 per­cent Tues­day while Ac­cess Bank climbed 3.23 per­cent.

First Bank was up 3.06 per­cent while Stan­bic IBTC gained 1.25 per­cent. Zenith Bank and Guar­anty Trust Bank rose 0.6 per­cent and 0.39 per­cent re­spec­tively on the day.

“Given that sav­ings de­posits ac­count for around 20 per­cent of the de­posit li­a­bil­i­ties of com­mer­cial banks, the new di­rec­tive should be pos­i­tive for banks in terms of a slight re­duc­tion in their over­all cost of funds,” an­a­lysts at La­gos- based in­vest­ment bank, FBN Quest said in a Sept.1 note re­act­ing to the new di­rec­tive.

“All else be­ing equal, our back of the en­ve­lope cal­cu­la­tions in­di­cate that on av­er­age, the cost of funds for our uni­verse of banks could po­ten­tially de­cline by around c.50bps in Q4,” the FBN Quest an­a­lysts said. “In terms of earn­ings im­pact, we es­ti­mate an av­er­age in­crease of around 8 per­cent in the 2020 Profit Be­fore Tax ( PBT) for our banks uni­verse.”

They how­ever add a caveat that the strin­gent rules around in­ter­est on sav­ings make it doubt­ful that the im­pact will be that ma­te­rial.

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