Moody’s Investors Service, a global ratings agency ,has warned that Nigeria’s banking sector faces fresh profitability risks after the Central Bank of Nigeria cut its benchmark Monetary Policy Rate to 27% from 27.5%.
The Nigerian apex bank said the 50-basis-point cut was driven by sustained disinflation, projections of further inflation decline, and the need to stimulate economic recovery.
ALSO READ: Moody’s Upgrades Ecobank Ratings Outlook to Stable
However, Moody’s cautioned that the move could erode banks’ net interest margins unless higher loan volumes offset lower yields.
“We expect the lower policy rate to drive a decline in yields on loans and government securities that will outpace the related decrease in the cost of deposits,” the agency stated, noting that deposit costs adjust more slowly than lending rates.
Net interest income accounted for 62% of Nigerian banks’ operating income in 2024, Moody’s said, stressing that the reduction in the Cash Reserve Requirement would provide only partial relief.
