Banks Are Still Sound But … – CBN

Moderate declines in returns on equity, assets Excess liquidity puts pressure on forex NPL ratio deteriorates

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A recent review of the status of Nigeria’s banking industry at the backdrop of the adverse impact of COVID-19 on the overall economy has indicated sound fundamentals. But the policy powerhouse of the apex financial regulatory authority also hinted of some downside risks and weak links.

Vanguard’s analysis of the financial performance of the leading banks in Nigeria indicated a significant drop in revenue and profitability on industry-wide scale. However, the personal positions of members of the Monetary Policy Committee, MPC, of the CBN has given a near-clean bill of health to the industry, while pointing to some red flags in the first quarter of 2021.

The MPC is the Nigeria’s monetary policy authority domiciled with the CBN. The apex bank’s recent report indicates a positive impact of the estimated N2.3 trillion economic recovery and stimulus package rolled out against COVID-19 in the second quarter of 2020 through the first quarter of 2021.

Consequently, CBN says that a review of financial markets condition indicates a modest monetary expansion, with annualised M3 growth of 1.8 percent in February 2021.  M3 is a collection of the money supply that includes broad money supply (M2) as well as large time deposits, institutional money market funds, short-term repurchase agreements, and larger liquid funds. M3 is closely associated with larger financial institutions and corporations than with small businesses and individuals.

The modest expansion recorded in February reflected the 18.1 percent annualised expansion in net domestic assets due to the 19.2 percent annualised increase in credit to core private sector.

Speaking on this, CBN Governor, Godwin Emefiele, said ‘‘the observed growth in private sector credit follows our various interventions aimed at spurring aggregate demand, stimulating output, and de-risking the productive activities.’’

Speaking on the spill-over effect of this money supply situation Emefiele stated: ‘‘Regardless of the increase in credit, the banking system remained relatively resilient with industry averages of the CAR (Capital Adequacy Ratio) at 15.2 percent, NPLs (Non-Performing Loans) ratio at 6.3 percent, and liquidity ratio at 40.5 percent.’’

He added that the apex bank will sustain its regulatory measures to foster banking system stability. Commenting on the state of the banking industry, CBN’s Deputy Governor, Corporate Services Directorate, Adamu Lametek, said the prospects of improved domestic output in 2021 hinge mainly on effective liquidity support to the economy by banking industry with robust private credit and confidence building through predictable policy actions.

– Vanguard

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