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.

Non-performing Loans (NPLs) rose to N478 billion in four major banks in the country in the first half (H1) of the year.

Guaranty Trust Bank Holding Plc (GTCO), FBN Holdings Plc, FCMB Group Plc and Fidelity Bank Plc reported billion in NPLs in the period under review, representing a 16 percent increase from the N413.36 billion filed on December 31, 2022.

A breakdown of the report shows FBN Holdings with approximately 4.3 percent NPL ratio and a gross loan portfolio of N5.26 trillion reported an increase in NPLs from N204.29 billion in 2022 to N226.24 billion during the first half of 2023.

This represents an increase from the 5.4 percent NPL ratio and N3.79 trillion gross loans & advances reported in the previous financial year.

GTCO, in its financial disclosure, reported N115.29 billion in NPLs as of H1 2023, up from N102.37 billion in 2022.

The bank’s presentation to investors and analysts highlighted that the Group’s IFRS 9 Stage 3 loans decreased to 4.6 percent (Bank: 3.6 percent) in H1-2023 from 5.2 percent (Bank: 4.7 percent) in 2022. Notably, the highest NPLs were observed in the Individuals and Others sectors, at 20.9 percent and 30.96 percent, respectively.

Fidelity Bank on the other hand reported N84.73 billion in NPLs as of H1 2023, up from N61.37 billion while FCMB Group declared N52.66 billion in NPLs during the same period, an increase from N45.01 billion in 2022.

Banks in Nigeria have continued to grapple with non-performing loans, leading them to write off such loans. Concurrently, lenders have been debiting the accounts of debtors who have been reluctant to meet their obligations, all aimed at reducing the volume of non-performing loans.

In response to this challenge, the Central Bank of Nigeria (CBN) introduced the Global Standing Instruction (GSI) guideline in 2020. The GSI empowers banks to recover outstanding principal and interest from any account maintained by the debtor across all financial institutions in Nigeria upon default.

In a recent report, Kingsley Obiora, a member of the Monetary Policy Committee, noted that despite a decrease in the Capital Adequacy Ratio (CAR) to 11.2 percent in 2023 from 14.1 percent, it still exceeded the prudential requirement of 10.0 percent.

The Liquidity Ratio (LR) also remained above the regulatory minimum, increasing significantly from 42.6 percent in June 2022 to 48.4 percent in June 2023.

The Nigerian banking sector faces significant challenges with rising non-performing loans, but regulatory measures and prudent management strategies remain in place to maintain stability and protect the interests of both banks and their customers.