The banking industry battled several macroeconomic headwinds, including interest rate hikes, high inflation and foreign exchange shortages, but it remained resilient.
The inflation rate, which affects the purchasing power of banks’ customers and their ability to save, started the year at 15.60 percent (January), rose to 21.47 percent in November, and is projected to rise further in December, according to members of the Monetary Policy Committee (MPC).
The Monetary Policy Rate, also known as the benchmark interest rate, increased by 500 basis points to 16.5 percent at the end of the year from 11.5 percent at the beginning of the year, data from the CBN showed.
At the last MPC meeting in November, the Central Bank of Nigeria (CBN) raised its key interest rate by 100 basis points to 16. 5 percent, the fourth straight hike in the year.
On September 27, the central bank also raised the Cash Reserve Ratio to 32.5 percent from 27.5 percent to reduce inflation.
The naira depreciated by 7.4 percent against the dollar at the official market from 422 per dollar at the beginning of the year to N456/$ in December 23, 2022.
“The various Financial Soundness Indicators (FSI) showed that the banking systems remain safe, sound, and resilient,” Adeola Festus Adenikinju, an MPC member, said in his personal statement.
He said all the FSIs are within the prudential requirements and compared well with comparator countries, adding that all measures of industry aggregates: assets, deposits and credit rose year on year.
Consequently, he said the total assets of the banking industry grew by N12.37 trillion between the end of October 2021 and 2022. Similarly, the industry credit increased by N5.32 trillion over the same period. In addition, total industry deposits rose by N6.92 trillion between the end of October 2021 and 2022.
In October 2022, a total of 125,305 new credits valued at N767.06 billion were granted to various customers. There was a marginal increase in lending rates in the industry in response to recent measures by the CBN.
The decline in the industry’s non-performing loan ratio to 4.81 percent at the end of October 2022 compared to 5.29 percent at the end of October 2021 is commendable.
“There is a need to address the pressures on the naira exchange rate by boosting the supply of foreign exchange in the economy. I am also of the opinion that the FX sold by the Bank at the I&E windows should be for productive activities alone. The Bank should review its policy of those who qualify to benefit from FX sold in the official market,” Adenikinju said.
Aisha Ahmad, deputy governor in charge of financial system stability at the CBN, said the downside risks to the inflation outlook remain elevated, considering the traditional end-of-year spike in prices and build-up to the 2023 general elections, while policy trade-offs to address rising prices have become acutely challenging.
Ahmed said the financial system remains strong and continues to provide significant support for needed domestic economic resilience.
Data provided by CBN staff showed stability in broad financial soundness indicators and sustained improvement in asset quality, alongside growing credit to the private sector.
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Capital adequacy ratio as at October 2022 was robust at 13.40 percent above the minimum 10 percent requirement. Industry liquidity was also strong at 40.1 percent over the same period while the NPLs ratio declined further to 4.8 percent in October 2022, compared to 5.3 percent in October 2021.
According to her, total assets rose to N69.67 trillion in October 2022 from N57.30 trillion in October 2021, while total deposits rose to N43.05 trillion from N36.13 trillion over the same period. Total credit also increased by N5.32 trillion to N28.81 trillion between end-October 2021 and end-October 2022 with significant growth in credit to manufacturing, general commerce, and oil and gas sectors.
The continued credit expansion particularly to output-enhancing sectors is expected to further support economic activities. However, sustained regulatory vigilance is required to mitigate any potential crystallization of credit risk in the financial system in view of lingering macroeconomic risks.
