The banking industry total credit increased by N4.54 trillion or 17.40 percent between the end of April 2022 and the end of April 2023, reflecting increased industry funding base and adherence to the Central Bank of Nigeria (CBN)’s Loan to Deposit Ratio (LDR) directive.
The sector’s total gross credit increased from N26.10 trillion in April 2022 to N30.64 trillion in April 2023, due also to business strategy and competition. The credit growth was largely recorded in key sectors of the economy, including oil and gas, manufacturing, general commerce, and government.
Sanusi Aliyu, member of the Monetary Policy Committee (MPC) who disclosed this in his personal statement at the last meeting in May 2023, which was released by the CBN on Monday said the upward trend in total credit to the economy had continued since 2019 following the LDR policy.
The banking system stability review report showed that the Capital Adequacy Ratio (CAR), standing at 12.8 percent in April 2023, was above the regulatory minimum of 10 percent.
Liquidity ratio stood at 45.3 percent, above the regulatory minimum of 30 percent. These suggest that the banking system continues to remain safe, sound and resilient, he said. The industry’s total assets and gross credit to the economy have sustained an upward trend, the former grew year-on-year by N16.65 trillion or 25.88 percent to N80.97 trillion in April 2023.
Non-performing Loans (NPLs) ratio declined to 4.4 per cent in April 2023 from 5.3 per cent in March 2022, further below the maximum prudential requirement of 5.0 per cent. The continuous decline in NPL was attributable to write-offs, restructuring of facilities, Global Standing Instruction (GSI) and sound credit risk management.
“The report on the banking system stability review was presented to members of the MPC. The financial soundness indicators remain positive and show that the banking system remains strong, sound, and resilient,” Festus Adenikinju, member of the Monetary Policy Committee said in his personal statement at the May 2023 meeting.
The CBN in October 2019 raised the Loan to Deposit Ratio of banks to 65 per cent, after the September 30, 2019 deadline given to the banks to meet its 60 per cent directive. However, the regulator extended the deadline of the 65 percent LDR to March 31, 2020.
Aisha Ahmad, deputy governor in charge of the financial system stability, said in her personal statement at the January 2020 Monetary Policy Committee (MPC) meeting that the LDR policy retained its efficacy, stimulating substantial increases in private sector loans, lowering market lending rates and has progressively diversified industry credit portfolio.
According to Adenikinju, both the Return on Equity (ROE) and Returns on Asset (ROA) increased between March 2023 and April 2023. ROE rose from 21.6 percent to 22.6 percent; while ROA increased from 1.6 percent to 1.7 percent between March 2023 and April 2023, respectively. Interest margins to total operating income declined from 58.1 percent in March 2023 to 50.5 percent in April 2023. However, operating cost to operating income declined marginally from 70.6 percent to 70.5 percent between March and April 2023. The high operating cost environment of the banking sector should be addressed.
In other climes, he noted that the ratio is 23.5 percent in Turkey, 50.6 percent in Brazil, 41.0 percent in Malaysia, 62.0 percent in South Africa, 43.2 percent in Angola, 35.2 percent in Egypt, Kenya is 45.2 percent and Ghana, 46.1 percent.
He said total industry deposits increased by N8.84 trillion or 21.4 percent between the end of April 2022 and April 2023. The stress tests conducted on the industry show that it can weather the major risks and vulnerabilities in the system.