The Nigerian banking sector’s profit fell by 28.4 per cent in the 2015 financial year, the just released Afrinvest 2016 Banking Sector Report showed.
The report, released in Lagos on Wednesday, indicated that foreign exchange volatility and lower oil price led to a major decline in the fortune of the sector.
The report read, “The resilience of the Nigerian banking sector was put to the test as elevated risk concerns triggered a spike in NPL ratio and slowed the pace of credit expansion dramatically. Gross loans and advances dipped by 1.9 per cent in 2015 across our coverage universe compared to the 26.6 per cent growth in 2014 as lower oil prices, FX volatility and liquidity concerns dampened risk appetite amidst a hazy economic road map.
It further stated, “As a result, sector profitability was depressed in 2015 with profit before tax tumbling by 28.4 per cent year-on-year as industry NPL ratio spiked to 4.9 per cent from three per cent in 2014.
“Furthermore, return on equity moderated to 9.1 per cent from 15.5 per cent in 2014. Capital adequacy ratio was strained on account of revised computation guidelines and increase in general loan loss provisioning, settling at 16.5 per cent in 2015 (relative to 19.7 per cent in 2014). Total deposits dipped by 1.8 per cent to N20.7tn, while total assets (+3.3 per cent ) and liabilities (+1.1 per cent) increased.”
Commenting on the report, the Group Managing Director, Afrinvest, Mr. Ike Chioke, said, “Our assessment of performance indicators in the Nigerian banking space indicated that performance softened in 2015 as events in the socio-political, economic and regulatory environment heightened risk consciousness, slowed the pace of credit expansion, deteriorated asset quality and weakened earnings capacity across all tiers in the sector.”
The report read in part, “Against the backdrop of lower oil prices, which have weakened macroeconomic fundamentals, the outlook for the sector in 2016 was expected to be dominated by developments in the FX market. Accordingly, we identify risk areas for Nigerian banks to include: credit exposure to high risk sectors; default risk arising from general commerce and manufacturing due to liquidity challenges in the FX market; credit concentration risk emanating from upstream oil and gas loans due to lower oil price; potential default risk arising from power asset loans, which are predominantly denominated in United States dollar; pressure on Capital Adequacy Ratio in the aftermath of the depreciation of the naira; and restrained appetite for both sovereign and corporate Eurobonds.
“The report highlighted expectations for the performance of the banking sector as risk assets to expand nominally due to currency adjustment. Although real loan growth is expected to be muted in 2016, the 29.1 per cent effective devaluation of the local unit will translate into a circa 15 per cent nominal expansion in industry loan book given the significant 37 per cent foreign currency denominated risk asset exposure as at FY 2015.”
Nigerian Banks’ Borrowings from CBN Surge 835% in a Month, Raising Liquidity Concerns
The Nigerian banking sector has witnessed an unprecedented 835% surge in borrowings from the Central Bank of Nigeria (CBN) in the span of just one month, igniting concerns over the nation’s liquidity stability.
Data reveals that banks’ dependence on the CBN has reached new heights, with their borrowings skyrocketing from a relatively modest N323.97 billion in August to N3.03 trillion in September. This remarkable increase underscores a growing reliance on the CBN’s support in times of financial stress.
This surge in borrowing activity has primarily been attributed to the CBN’s stringent monetary policies aimed at curbing inflation and managing the demand for foreign exchange. These policies have, in turn, squeezed commercial banks, compelling them to tap into the CBN’s Standing Lending Facility (SLF) for immediate liquidity needs.
Despite the escalating dependence on CBN funds, the Monetary Policy Committee (MPC) of the apex bank insists that the Nigerian banking sector remains fundamentally robust. MPC member Adenikinju Festus highlighted key indicators, including Capital Adequacy Ratio (CAR) and Non-Performing Loan (NPL) ratios, which still align with prudential standards. Furthermore, liquidity ratios have improved, and returns on equity and assets have risen.
However, the banking industry’s persistently high operating costs are raising alarms. In comparison to international standards, Nigerian banks are grappling with substantially higher operating expenses, prompting concerns about their long-term sustainability.
In a parallel development, the CBN’s Development Finance Department has disbursed a total of N9.714 trillion to various sectors of the economy over the past three years, with manufacturing and industries receiving the largest share at 32.6%.
Other sectors, including energy, agriculture, services, micro, small, and medium enterprises (MSMEs), export, and health, have also benefited significantly from these disbursements.
While the CBN remains committed to fostering sustainable economic growth, the surging dependence of Nigerian banks on short-term borrowings from the central bank is casting shadows on the sector’s long-term stability.
As Nigeria grapples with these liquidity concerns, the financial industry and regulators face the challenging task of charting a course towards a more resilient and sustainable banking environment.
Central Bank of Nigeria Postpones 293rd Monetary Policy Committee Meeting
The Central Bank of Nigeria (CBN) has announced the postponement of its 293rd Monetary Policy Committee (MPC) meeting, originally scheduled for September 25th and 26th, 2023.
Dr. Isa AbdulMumin, the bank’s Director of Corporate Communications, released a statement on Thursday confirming the decision.
In the statement, Dr. AbdulMumin stated, “The Monetary Policy Committee of the Central Bank of Nigeria has deferred its 293rd meeting, which was initially planned for Monday and Tuesday, September 25th and 26th, 2023, respectively. A new date will be communicated in due course. We regret any inconvenience this change may cause our stakeholders and the general public.”
While the CBN did not provide an official reason for the postponement, some industry experts suggest it may be related to the pending approvals for the newly appointed governor and deputy governors of the bank.
President Bola Tinubu recently nominated Yemi Cardoso as the potential head of the CBN. Additionally, Tinubu has endorsed the nominations of four new deputy governors for the apex bank, who are expected to serve for an initial term of five years, pending confirmation by the Senate.
The nominated deputy governors are Emem Usoro, Muhammad Abdullahi-Dattijo, Philip Ikeazor, and Bala Bello. However, the appointment of the CBN governor is contingent upon Senate confirmation, which is currently on a yearly recess.
The CBN assures stakeholders and the public that the rescheduled MPC meeting date will be communicated promptly as soon as it is confirmed.
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