The Afrinvest 2022 Banking Sector Report (BSR) has shown that commercial banks recorded modest improvement in all regulatory indicators despite daunting economic challenges.
The report’s assessment of Central Bank of Nigeria (CBN’s) financial stability indicators showed that liquidity ratio and Non-Performing Loan (NPL) ratio for banks improved by 130 basis points (up) and 75bps (down), respectively, to 42.6 per cent and 4.95 per cent.
Although, the Capital Adequacy ratio (CAR) 14.1 per cent underperformed the June 2021 level by 140bps, all the indicators beat the prudential guideline limits of 30 per cent (LR), five per cent (NPLs), and 13 per cent (CAR), respectively, despite myriads of challenges in the business environment.
The report, presented by Deputy Group Managing Director, Afrinvest West Africa Limited, Victor Ndukauba, showed that the banks beat all the prudential guideline limits set by the Central Bank of Nigeria (CBN), an indication of their resilience and strength during the year.
It said the improvement is expected to be sustained over the coming years.
It explained that the fiscal challenges presented by weak Federal Government earnings have contributed to the muddling of monetary policy and strong use of Cash Reserve Ratio debits as a subtle strategy, in our view, to compensate for the inflationary effect of ballooned overdraft to the government.
It insists that in increasing its developmental financing role, especially in agriculture financing, the CBN risks crowding out banks and private sector financing which is more effective in de-risking the sector and incentivising growth without moral hazards.
“Importantly, the weak economic growth has robbed banks of the dividend of large and youthful demographics. Over the last 10 years to 2021, real GDP has grown by a compound annual growth rate (CAGR) of 1.9 per cent compared to 2.3 per cent CAGR for the population.
“ For banks, this reality means that upscaling would be less efficient than in an economy where growth exceeds population expansion. Not surprising, Nigeria’s financial depth is weak as is for countries with high fertility rates and a fragile economic base,” it said.
To turn the tide, the BSR recommended that critical reforms be undertaken as matter of urgency to avoid a repeat of the negative trends seen in the last decade.
In his comments, Group Managing Director, Afrinvest West Africa Limited, Ike Chioke, said Nigerians should prepare for reforms that will turn the economy around.
He said that looking ahead, Nigeria is set for another cycle of leadership in 2023 as the tenure of President Muhammadu Buhari, 30 state governors, and over 1,000 legislatures draw to a close.
“At a time when there is daunting fiscal, monetary, and social challenges to surmount, Nigerians cannot afford to elect leaders who lack the competence, capacity, and creativity to find lasting solutions to the national quagmire. Even with a leadership that is willing to introduce the needed reforms, the present challenging environment would worsen before it can get better,” he said.
According to the him, regardless of who the President is, Nigerians would need to brace for impact. “Noteworthy, the political will of the incoming administration to imple- ment tough reforms that would curtail major economic leakages such as the subsidy regime on PMS (which has gulped over N7 trillion since 2010) and ensure the proper channelling of scarce resources to critical sectors would be a refreshing start,” he said.