This picture taken on January 29, 2016 in Lagos shows 1000 naira banknotes, Nigeria's currency. - Nigeria's central bank governor, Godwin Emefiele, on January 26 dismissed calls to devalue the naira in his monetary policy committee statement. Instead he chose to continue propping up the currency at 197-199 naira to the dollar and maintain foreign-exchange restrictions. As a result, the naira on the black market is hovering around a record low of 305, fuelling complaints from domestic and foreign businesses who can't access dollars required for imports. (Photo by PIUS UTOMI EKPEI / AFP) (Photo by PIUS UTOMI EKPEI/AFP via Getty Images)
By Akinmola David
Despite a modest improvement in all regulatory indicators, increasing poverty that climbed to 40.1 percent has denied the Nigerian banking sector of exponential growth, according to the 2022 Afrinvest Banking Sector Report
The report noted that Nigerian commercial banks beat all the prudential guideline limits by the Central Bank of Nigeria (CBN), as seen in its assessment of the apex bank’s financial stability indicators, which showed that Industry Liquidity (Liquidity Ratio) and Non-Performing Loan ratios both improved by 130 basis points (up) and 75bps (down) respectively, to 42.6 percent and 4.95 percent.
Although the Capital Adequacy Ratio (CAR: 14.1 percent) underperformed the June 2021 level by 140bps, all the indicators beat the prudential guideline limits of 30 percent (LR), five percent (NPLs), and 13.0 percent (CAR) respectively, despite challenges in the business environment.
However, the report indicates that the banking sector could not tap the opportunities from the large youthful demographics owing to weak economic growth and increasing poverty.
Presenting the report during the launch of the 17th edition of the Nigerian Banking Sector Report and unveiling of Optimus, Afrinvest’s digital investment app, in Lagos, the Deputy Group Managing Director, Afrinvest West Africa, Victor Ndukauba, said that the improvements are likely to be sustained over the coming years.
The report launch also marked the announcement of Afrinvest’s new subsidiaries and expansion of its leadership team as well as the unveiling of Afrinvest’s refreshed logo (brand identity).
According to the report, fiscal challenges occasioned 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 to compensate for the inflationary effect of ballooned overdraft to the government.
However, the report warned CBN against crowding out banks and private sector financing while increasing its developmental financing role, especially in agriculture financing, pointing out that private sector financing is more effective in de-risking the sector and incentivizing 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 Gross Domestic Product (GDP) has grown by a compound annual growth rate (CAGR) of 1.9 percent compared to 2.3 percent CAGR for the population,” the report stated.
As a result of the decline in income level, poverty has risen to 40.1 percent based on national standards of an annual real per capita expenditure threshold of N137,430.
”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,” the report stated.
