The banking industry witnessed a remarkable increase in total credit by N4.54 trillion or 17.40 per cent by end of April 2023 compared to the level as at April 2022.
Experts attribute this surge to the enhancement of industry funding base and adherence to the Central Bank of Nigeria (CBN)’s Loan to Deposit Ratio (LDR) directive.
Gross credit within the sector surged from N26.10 trillion in April 2022 to N30.64 trillion in April 2023, driven by strategic business decisions and intensified competition. The credit growth was primarily experienced in pivotal sectors such as oil and gas, manufacturing, general commerce, and government.
According to Sanusi Aliyu, a member of the Monetary Policy Committee (MPC), who revealed this in his personal statement during the last meeting in May 2023, which was released by the CBN on Monday, the trend of increasing total credit to the economy has been consistent since 2019 following the LDR policy.
The banking system stability review report indicated that the Capital Adequacy Ratio (CAR) stood at 12.8 percent in April 2023, which is comfortably above the regulatory minimum of 10 per cent.
Liquidity ratio stood at 45.3 percent, surpassing the regulatory minimum of 30 per cent. These results affirm that the banking system remains secure, stable, and resilient, as stated by Aliyu. The industry’s total assets and gross credit to the economy have maintained an upward trajectory, with the former expanding year-on-year by N16.65 trillion or 25.88 per cent to N80.97 trillion in April 2023.
The Non-performing Loans (NPLs) ratio declined to 4.4 per cent in April 2023 from 5.3 per cent in March 2022, well below the maximum prudential requirement of 5.0 per cent. The continuous decline in NPLs was due to write-offs, facility restructuring, 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,” stated Festus Adenikinju, a member of the Monetary Policy Committee, in his personal statement at the May 2023 meeting.
In October 2019, the CBN raised the Loan to Deposit Ratio of banks to 65 per cent, following the September 30, 2019 deadline given to banks to comply with the 60 per cent directive. However, the regulator extended the deadline for the 65 percent LDR to March 31, 2020.
Aisha Ahmad, deputy governor in charge of financial system stability, highlighted in her personal statement at the January 2020 Monetary Policy Committee (MPC) meeting that the LDR policy has remained effective, leading to significant increases in private sector loans, lowering market lending rates, and progressively diversifying industry credit portfolio.
According to Adenikinju, both the Return on Equity (ROE) and Return on Assets (ROA) witnessed growth between March 2023 and April 2023. ROE rose from 21.6 per cent to 22.6 per cent, while ROA increased from 1.6 per cent to 1.7 per cent during the respective period. Interest margins to total operating income declined from 58.1 per cent in March 2023 to 50.5 per cent in April 2023. However, operating cost to operating income marginally decreased from 70.6 per cent to 70.5 per cent between March and April 2023. Addressing the high operating cost environment in the banking sector is imperative.
In comparison with other countries, the ratio stands at 23.5 per cent in Turkey, 50.6 per cent in Brazil, 41.0 per cent in Malaysia, 62.0 per cent in South Africa, 43.2 per cent in Angola, 35.2 per cent in Egypt, 45.2 per cent in Kenya, and 46.1 per cent in Ghana, as highlighted by Adenikinju.
He noted that total industry deposits increased by N8.84 trillion or 21.4 per cent between the end of April 2022 and April 2023. Stress tests conducted on the industry indicate its ability to withstand major risks and vulnerabilities in the system.