The Central Bank of Nigeria (CBN) on Monday said there have been some improvements in the banking system as the deteriorations in financial soundness indicators have been halted, and in some cases reversed.
In his personal statement at the last Monetary Policy Committee (MPC) meeting, Adamu, Edward Lamtek, noted that industry return on asset (ROA) and return on earnings (ROE) rose quite significantly to 21.57 and 2.14 per cent, respectively, in April, from 11.78 and 1.28 in February 2018. Likewise, the non-performing loans (NPLs) ratio moderated slightly in April.
“These positive developments are broadly connected to the improvement in the macroeconomic conditions including stable exchange rate and declining inflation. Interestingly, banking system stability is required for proper financial intermediation (including credit flow to the real sector) which is needed to support recovery in output”, Lamtek said.
From a financial stability standpoint,he said inflation threats or risks to the naira exchange rate stability are to be mitigated upfront in order to sustain and deepen the resilience of the industry.
Adenikinju, Adeola Festus, MPC member said the domestic economic fundamentals remain largely positive and encouraging.
Adeola also noted that the balance sheet of the banking sector has also improved relative to the last MPC meeting. However, he said it is clear that banks are more eager to strengthen their balance sheet than commit to new credits. The continuous preference of banks for relatively safer fixed income assets rather than direct lending to the real sector of the economy remains a critical challenge to current policy stance.
“In general the banking system witnessed growth in aggregate deposits in the first quarter of 2018, however, there was no corresponding increase in credit. This implies that more liquidity in the system may not mean more credit as is widely believed in the short term. The high operating expenses in the banking system need to be carefully addressed to reduce the high cost environment which in my view impacts more on lending rates than even the MPR”, he added.
Ahmad, Aishah, noted in her MPC statement that the banking sector Non-Performing Loans (NPLs) concentrated in a few sectors, remain a bit higher, whilst credit to the private sector contracted by 0.16 per cent in April 2018, compared to the provisional annual growth benchmark of 5.64 per cent.
“Bank lending rates also remained significantly high – all indicative that the banking industry requires more impetus to substantially reflect the benefits of the ongoing recovery. Thus, the monetary authority must work with the relevant financial institutions to entrench innovative measures to safely increase credit to the real sector”, Aishah said.
