The Nigerian banking and financial sector was marked by a blend of economic shifts, regulatory changes, and technological advancements in 2023.
According to Yemi Cardoso, governor of the Central Bank of Nigeria (CBN) Nigeria’s financial sector has demonstrated resilience
in 2023, with key indicators of financial soundness largely meeting regulatory benchmarks, despite the challenging global and domestic macroeconomic environment.
“Considering recent developments within our domestic economy, it is evident that we are facing significant macroeconomic and social challenges.
These challenges stem from a variety of factors, including adverse global shocks, unfavorable domestic imbalances, structural rigidities, and the unintended consequences of certain corrective policy measures implemented to restore and realign our macroeconomic landscape,” he said.
The financial sector remained resilient in the first half of 2023, as key financial soundness indicators were within regulatory limits, the CBN said in its half year report.
Here are some key events that shaped the banking industry:
Central Bank policy adjustments: The apex Bank continued its series of interest rates hikes in the year. It first raised it’s monetary policy rate, known as Monetary Policy Rate (MPR) in May 2022 and has increased it to 18.75 percent in July 2023 from 11.5 percent in April 2022.
The reason for the interest rate hike is to curb inflation and attract foreign investment. This impacted lending and borrowing rates across the banking sector.
Cash Reserve Ratio (CRR): the CBN in July 2023 revised the CRR of Merchant banks to 10 percent from 32.5 percent, and this took effect August 1, 2023.
Haruna Mustafa, director, banking supervision disclosed this in a letter to all Merchant banks dated July 14, 2023.
Cash withdrawal limits: The CBN excluded Microfinance Banks (MfBs) and Primary Mortgage Banks (PMBs) from its cash withdrawal limit policy.
This was disclosed in a circular to all banks and other financial institutions (OFIs), signed by Musa Jimoh, director, payment system management department, CBN.
According to the circular, this was to enable these institutions to continue to play their expected roles in the economy and provide specialised retail banking services to their customers.
Digital transformation: The launch of the open banking framework enabled secure data sharing between banks and third-party providers, paving the way for innovative financial products and services.
Increased Fintech Adoption: Fintech startups continued to gain traction, offering alternative banking solutions and challenging traditional models. This fostered competition and accelerated digitalization within the industry.
Economic challenges and opportunities: The volatile oil market impacted Nigeria’s economy, influencing banking sector performance and loan portfolios.
Non-Oil Revenue Diversification: Efforts to diversify revenue sources beyond oil presented opportunities for banks to support new sectors and drive economic growth.
Regulatory Developments:
Cybersecurity Enhancements: The CBN issued stricter cybersecurity guidelines to address rising cyber threats in the financial sector. This led to increased investments in IT security by banks.
Consumer Protection Initiatives: Regulatory bodies focused on strengthening consumer protection frameworks, aiming to ensure fair banking practices and safeguard customer interests
Commercial Banks were resilient in the area of profitability. Most banks reported moderate profit growth despite economic headwinds, suggesting sound financial management and adaptability.
Capital Adequacy Ratio (CAR): The average CAR remained above regulatory requirements, showcasing the industry’s ability to absorb potential losses. Cardoso said banks should increase their capital in order to serve the $1 trillion economy.
Non-Interest Revenue: Increased earnings from fees, commissions, and digital banking activities cushioned the impact of lower lending income in the sector.
Regulatory support: The CBN’s policy interventions, like Loan-to-Deposit Ratio directives, encouraged lending to key sectors and boosted asset growth.
Challenges
Non-Performing Loans (NPLs): Despite improvements, NPLs remain a concern, particularly with rising interest rates potentially affecting loan repayment capabilities.
Inflationary Pressures: High inflation erodes profit margins and consumer purchasing power, impacting loan demand and bank income.
Foreign Exchange Scarcity: Limited access to hard currency constrains some banks’ international transactions and investments.
Cybersecurity Threats: Increased online banking activity amplifies cybersecurity risks, requiring ongoing investments in security measures.
Overall, the Nigerian banking sector demonstrated certain resiliencies in 2023, but vulnerabilities remain. Continued economic stability, effective regulatory measures, and proactive risk management will be crucial to sustain this resilience in the long term.
