Bank stocks set to gain from 13% interest rate

Banks are perhaps the biggest winners of the Central Bank of Nigeria (CBN)’s move on Tuesday to hike interest rates for the first time in six years.

With the CBN raising interest rates by 150 basis points to 13 percent to combat accelerating inflation, the yield on government securities, which banks hold a good chunk of, is expected to rise, increasing their profitability and boosting investor sentiment towards their stocks.

“Banks are in the money with this decision,” said Omotola Abimbola, an analyst at Lagos-based investment bank, Chapel Hill Denham. “Their stocks are expected to rise as the CBN looks set to begin the process of interest rate normalisation.”

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Banks have seen a subdued financial performance since last year due to the low interest rate environment, which curbed their profitability. That has dampened investor sentiment towards bank stocks, causing them to underperform the market.

While Nigerian stocks have emerged the best performers in Africa this year with a return of 24 percent since the beginning of 2022, bank stocks have only managed a 6.17 percent return in the same period, nearly four times less than the average return of the market.