Follow Us on Google
By Chinwendu Obienyi
As the world grappled with inflation and higher interest rates, the performance of the Nigerian banking sector did not fare too well as its profitability experienced slow growth when compared with the figures recorded in the previous year.
According to Afrinvest, monetary and fiscal authorities urgently need to rethink their anti-inflation strategies to holistically address the surging inflation rate.
Its Managing Director, Ike Chioke, disclosed this during the unveiling of the 2023 Nigerian Banking Sector Report titled: “Getting Nigeria to Work Again!” which was launched in Lagos recently.
The report stated that Central Banks’ around the world had to respond by raising on interest rates to tame consumer price increases. It added that notwithstanding, the global economy was resilient with a growth of 3.5 per cent.
It however noted that Nigeria experienced a slight slowdown in GDP growth, reaching only 3.1 per cent compared to 3.4% in 2021
“The financial services sector posted a more robust 17.2 percent GDP growth (10.5 per cent in 2021). Profitability was impacted by rising operating expenses (OPEX), which squeezed profit margins. Consequently, the combined gross earnings of banks within Afrinvest’s coverage universe saw a 24.6 percent recorded in 2022, reaching N7.1 trillion.
“However, pre-tax profit (PBT) and profit after tax (PAT) increased by only per cent and 9.1 percent respectively, a slower pace compared to the prior year’s 25.6 percent and 22.0 per cent growth,” the report revealed.
Chioke further noted that in terms of asset creation, the loan books of our coverage banks expanded 6.3 percent to N30.0 trillion in 2022, reflecting CBN’s efforts to increase credit accessibility. He noted that this expansion was supported by an 18.8 per cent growth in deposit bases, reaching N63.2 trillion as banks competed fiercely to attract deposits.
“Aggregate credit extended to the private sector increased by 9.7percent in 2022, a decrease from the 19.7 percent growth in the previous year. Notably, the industry’s average non-performing loan (NPL) ratio improved to 4.2 percent in 2022 from 4.9 percent thanks to more robust credit risk management practices by banks,” Chioke said
He said impairment charges rose by 61.5 percent in 2022, partly due to Nigerian banks’ exposure to Ghana’s sovereign debt default.
The report revealed that Meanwhile, industry Capital Adequacy Ratio (CAR) experienced a slight decrease of 64 basis points (BPS)o 20.8% (ex. ETI & Unity Bank) due to a faster increase in the risk-weighted assets by 9.7 per cent.
With Capital Adequacy Ration (CAR) still remaining above the regulatory threshold, the report recommended that industry recapitalisation mitigate the impact of inflation and currency devaluation on capital to enhance global competitiveness.
“For the non-interest Banking segment, its growth potential remains enormous and underpinned by factors, such as a large population with an interest in non-interest products and favourable regulatory support for the industry. However, the negative pass-through of elevated operating costs amidst high inflation has seen the industry’s net profit margin moderate to 27.1 per cent in Q4 2022”, It said.
The report also noted that the performance of the banking sector failed to inspire a solid outing on the domestic bourse owing to regulatory policies and the global trend of rising benchmark interest rates. Resultantly, the NGX Banking-10 index rose 2.8 per cent in 2022 underperforming the broader market’s 20.0 per cent appreciation for the year.
Speaking on the current inflation figure, Chioke stated that year-over-year increase underscores the persistence of inflationary trends, offering crucial insights into the evolving economic landscape.
Whilst explaining that both the monetary and fiscal authorities have mainly been fixated on the control of money supply and selective tax reliefs, Chioke said that an effective strategy for taming the high inflation rate would be one that addresses structural bottlenecks (notably, insecurity and infrastructural gaps), improve ease of doing business, and incentivizes large-scale local production of agriculture and manufactured goods alongside effective liquidity management and proper anchoring of market yields to the Monetary Policy Rate (MPR).
