Nigeria’s foreign reserves hit a three-year high of $40.2 billion in 2024, but the naira saw instability for much of the year, with the Central Bank of Nigeria (CBN) tweaking policies to stabilise the foreign exchange (FX) market.
These were some of the highlights of 2024, which challenged Governor Yemi Cardoso to introduce policies, including the Electronic Foreign Exchange Matching System (EFEMS), to stabilise the FX market.
Monetary policy tightening
Escalating inflation driven by currency depreciation and rising food prices pushed an aggressive monetary tightening by the CBN, including interest rate hikes totaling 875 basis points throughout 2024, and a raise in Cash Reserve Ratio of 50 percent.
These measures aimed to tighten liquidity and curb inflationary pressures but they raised concerns about the potential negative impacts of inflation on economic growth and domestic investment.
Inflation peaked at a record 34.6 percent in November, and according to experts, including the International Monetary fund and CBN governor, Yemi Cardoso, this indicates that relying on monetary policy alone is not really enough, even though it has helped in moderating pace of increase.
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“The measures implemented to curb inflation, coupled with foreign exchange market reforms, are bolstering Nigeria’s economic growth,” Cardoso said.
“But the case for economic diversification has never been more urgent – reliance on a single sector is simply unsustainable,” Cardoso told bankers at their annual dinner late November.
Foreign exchange market reforms
The CBN streamlined the foreign exchange (FX) market into a single framework, promoting a “willing buyer, willing seller” model, aimed to curb arbitrage, improve transparency, enhance liquidity and reduce market distortions. Its periodic interventions also reduced exchange rate volatility, leading to a calmer market in the latter half of the year
It also took significant steps to clear a $7 billion backlog of valid foreign exchange (FX) forwards, which equally helped to stabilise the exchange rate and boost market confidence.
Those efforts saw average daily turnover in the autonomous FX market increase by 226 percent in the first half of the year, as against same period in 2023. Foreign portfolio inflows rose by over 72 percent within the period, while foreign exchange reserves rose from $32 billion in May 2023 to over $40 billion today, the highest level in nearly three years.
Just recently, the CBN announced the introduction of EFEMS, an electronic FX matching system to further enhance transparency, curb speculation and market distortions, restore confidence, and attract new investments.
The CBN further directed BDCs to integrate their IT systems with its own infrastructure, promoting transparency and better regulatory monitoring, alongside some new corporate governance requirements.
Bank licensing and expansion
In 2024, the CBN approved one bank as a non-operating financial holding company, while another transitioned from a merchant to a national commercial bank. Two banks received Approvals In Principle (AIP) for regional commercial licenses, and one for regional non-interest banking. In the microfinance sector, it licenced 16 new banks and re-licensed 53 of them whose licences were previously revoked. Also, five new approvals were given to finance companies for operations.
Banks’ recapitalisation
Cardoso had hinted late 2023 of a possible bank recapitalization to raise their minimum capital requirements. This was later announced, with March 31, 2026, set as a deadline. The directive, Cardoso said, was to strengthen their resilience and capacity for risk-taking and further stabilise the financial system. It would also enable sufficient bank capital to service the $1 trillion economy by 2030 as proposed by President Tinubu. In 2024, many banks deployed different strategies, including equity issuance and license adjustments to shore up their capital.
“I am pleased to note that a significant number of banks have raised the required capital through right issues and public offerings well ahead of the 2026 deadline,” Cardoso disclosed in November.
Meanwhile, Nigerian banks continued on a resilient path, with the non-performing loan ratio remaining within the 5 percent prudential benchmark, as their liquidity ratio exceeded the 30 percent benchmark, ensuring adequate cash flow in the system.
Market conduct and Transparency
To improve financial system resilience, the CBN prohibited banks from distributing unearned income, including foreign currency revaluation gains, for the financial year ending December 31, 2023. A letter dated March 14, 2024, emphasised the need for banks to exercise prudence and set aside these gains as a counter-cyclical buffer to mitigate potential adverse movements in the foreign exchange rate, while also ensuring that investors receive a clear picture of bank performance.
The CBN also introduced guidelines to improve the management of dormant accounts, unclaimed balances, and other financial assets in July 2024. This was aimed to identify and reunite them with their owners, hold these funds in trust for them, standardise management practices, while establishing procedures for reclaiming warehoused funds.
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Suspension of Processing Fees on Cash Deposits
Effective May 6, 2024, the CBN suspended processing fees on cash deposits exceeding N500,000 for individuals and N3,000,000 for corporates until September 30, 2024. Additionally, a three-month waiver (from January 15 to April 15, 2024) was granted to DMBs for depositing lower denominations (N50 and below) with the CBN at no processing cost. This initiative was targeted at encouraging cash deposits, strengthening financial intermediation, and aiding in the effective transmission of monetary policy.
Naira Instability
In spite of these achievements, the naira was mostly unstable this year, closing the year at N1538/$ on December 30.
Though the naira has seen some stability recently, it was once adjudged one of the worst-performing currencies in the world. It has lost over 70 percent of its value in about one year.
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