Banking sector outperforms economy despite harsh environment – Afrinvest

…records N85.1trn assets in 8 years

Financial institutions’ gross domestic product (GDP) outperformed the broader economy in the last era (8 years), posting an average growth of 9.8 percent compared to 1.5 percent for the economy despite hash macroeconomic and monetary policy episodes.

Increased access to banking solutions, vertical and horizontal business expansions, and entry of neo-banks and fintech players were key catalysts, according to Arinvest West Africa in its 2023 banking sector report, with the theme, ‘Getting Nigeria to work again’.

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“The outlook is quite positive. You can see from the numbers, that the banking sector has continued to grow quite aggressively, despite a more sort of tepid growth from the general economy, Ike Chioke, group managing director of Afrinvest (West Africa) Limited, said at the official unveiling of the report in Lagos, Tuesday.

According to the report, whereas Nigeria has averaged about two to three percent growth over the last few years, the banking sector is averaging about 19 percent growth in terms of assets, and that profits have been quite impressive.

“You can see the numbers as they report. Look at UBA numbers recently. So the banks are able to ride on the momentum of potential and particularly in a situation where the government continues to borrow, the banks can also use the liquidity to take advantage of those opportunities,” he said.

In his presentation, Abiodun Keripe, managing director, Afrinvest Research and Consulting, noted that the monetary policy strategy under the Central Bank of Nigeria (CBN) era failed to preserve the institution’s primary objectives, and the outcome of this hampered banks from fully optimising their potential.

He highlighted the five policy metrics under which the banking sector operated in the last era including price stability, exchange rate management, monetary policy anchor strategy, government’s banker, and banking regulation.

According to him, the banking sector’s total assets grew by 16.1 percent to N85.1 trillion in 2022 from N25.8 trillion in 2014.

The sector posted N1.2 trillion profit after tax in 2022, representing an increase of 10.8 percent over N0.5 trillion recorded in 2014.

Speaking at the event, Wale Edun, minister of finance and coordinating minister of economy, said the Federal Government has not leveraged the tens of trillion assets in the Ministry of Finance Incorporated (MOFI), Nigeria’s investment vehicle.

Represented by Armstrong Takang, managing director/CEO of MOFI, he said, “MOFI has assets that are worth 10s of trillions of naira. Unfortunately, most of those assets over time we have not really leveraged on it. Anybody in finance knows the value of leverage.

“A lot of those assets really represent our own equity. We have not used that equity to leverage debt and other types of capital flows. We’re beginning to use some of that.

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“We believe that those assets represent significant opportunities for us to be able to unlock liquidity by putting some of those upfront and in most cases the cost of that liquidity is a lot cheaper when you use assets you want at the moment rather than unsecured debt for using sovereign debts,” he said.