Banking: Resilience amid headwinds

The year has several unique that defined banks and other financial institutions operations. The year saw banks facing stiff regulations by the Central Bank of Nigeria (CBN) bent on getting them to lend to the domestic economy.

Over N4 trillion Cash Reserve Requirement (CRR) was debited in banks’ accounts for not meeting different level of CRR. At the last week of 2020, debited the accounts of 23 deposit money banks with N349.72 billion over CRR breaches.

The debits are the latest in the regulator’s CRR debits meant to get the banks to lend to real sector operators. The debits are also part of the apex bank’s move to mop up liquidity as inflation uptick persists. The CRR debit for November stood at N226 billion. The CRR is an important monetary policy tool used by the CBN to regulate the economy.

Besides CRR debits, the apex bank also promoted low cost banking services campaign. The regulator used the year to encourage banks and other financial institutions to reduce the cost of providing banking services to their customers, especially the underbanked and unbanked within the society.

CBN Director, Payment System Management Department, Musa Jimoh gave the advice at the Hope Payment Service Bank opening in Lagos.

He described the cost of providing banking services to customers as ‘too high’.

Jimoh said the apex bank will be monitoring the new entrants into the banking sector- Payment Service Banks- and assess the rate at which they offer their services to customers after six months of operation. For the regulator, low-cost banking services will make its vision of getting over 80 per cent of the population into the financial services net possible.

Financial inclusion

Financial inclusion is one area that many banks need to pay much attention to. But successfully enrolling new customers from all cadres of the society will require huge investments in technology and quality customer services. Aside being known for their customer-centric approach to service delivery, banks took steps to promote digital services , which allowed customers transact businesses from their point of comfort and in the convenience of their homes and offices.

For the non tech-savvy customers, the Unstructured Supplementary Service Data (USSD) remains a most convenient and available platform for use.

Technology has also supported its quest for enhanced re-skilling of its greatest asset – employees – for the emerging demands and habits of its over 11million (Mobile App) customers during the COVID era and beyond.

All these have reflected positively on bank’s unaudited results for the nine months ended September 30, 2020.

The CBN also within the year defended its intervention policies on the economy, saying they were necessary to keep the economy going in the face of COVID-19 pandemic.

The bank stated this in the light of Nigerian Economic Summit Group (NESG) position, which calls into question some of the measures taken by the CBN to support the stability of our financial system and enable faster recovery of our economy, following the negative impact of the COVID-19 pandemic on Nigeria.

The CBN explained that from the one year extension of moratorium on principal repayments for CBN’s intervention facilities, strengthening of the Loan-to-Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers to creation of N50 billion target credit facility for affected households and small and medium enterprises through the NIRSAL Microfinance Bank and N100 billion intervention fund in loans to pharmaceutical firms, it had taken steps to lift the economy and businesses during the COVID-19 pandemic.

Devaluation

The devaluation of the naira against global currencies was also one factor that impacted negatively on foreign currency loans and weakened capital base for the lenders.

The Afrinvest Banking Sector Report for 2020 said the capital base of the Nigerian banking sector has also come under pressure due to the adoption of International Financial Reporting Standards (IFRS 9). The harsh operating environment resulting in higher non-performing loans and significant write-offs also did not help the lenders.

Also, due to the naira devaluation and weaker asset quality, industry Capital Adequacy Ratio is being pressured in the short term.

The report said the devaluation of the naira would inflate industry foreign currency loans, which is dominated by the oil and gas, manufacturing, general commerce and other import-dependent sectors.

The analysts advised that the industry would now require a recapitalisation exercise in the short to medium term as hinted by the Central Bank of Nigeria.

The year was also one where CBN and banks united forces against e-fraudsters. For the CBN, the implementation of the cashless policy had increased the risks associated with e-payments. CBN Director, Banking Supervision Department, Hassan Bello, said there was the need to enlighten the public on essential ways to protect their information against un-authorised access, disruptions, monitoring and alteration.

Bello said the cashless policy issued to drive the development and modernisation of the payment system, reduce the cost of banking services and promote financial inclusion amongst others had increased the risks associated with electronic banking.

He urged customers to monitor their accounts regularly and report unusual activities and balance to their banks.

Bello called for an enhanced security measures on all electronic delivery channels to minimise the loss of customers’ funds.

Bello described cybersecurity as the practice of protecting systems, networks, and programmes from digital attacks.

He said that cyberattacks were usually aimed at accessing, changing or destroying sensitive information; extorting money from users or interrupting normal business processes.

Changing forex

Very importantly, the year witnessed several rules on foreign exchange management including inflows and outflows. The CBN had permitted customers to deposit dollar into their domiciliary accounts but stopped them from transferring the funds to another party.

It only permitted electronic fund transfers into domiciliary accounts while cash deposits into such accounts can only be withdrawn in cash also.

But all that changed when the regulator faced forex scarcity and continued depreciation of the naira against greenback.

Analysing the state of the economy and foreign exchange market, a member of the CBN-led Monetary Policy Committee, Prof. Adeola Adenikinju, had expressed fears over inflation persistence, the continuous decline in foreign reserves, the liquidity surfeit in the economy, the negative current account balance, the poor state of the fiscal sector, fall in prices of financial assets, and the bearish outlook for the oil sector.

For him, the Monetary Policy Committee should by no means, ignore the inflation threat adding that the primary responsibility of the CBN remains price stability.

“The fall in interest rates across financial market instruments is suggestive of liquidity surfeit in the system. The CBN policy to increase lending to the real sector is a good policy to boost the supply side of the economy and relax constraints to domestic food and agricultural supply. This policy is in order and CBN should maintain it. Several analyses have shown that among the policies available to control liquidity in the Nigerian economy, the Cash Reserve Requirement is the most potent,” he said.

The IMF also within the year, sustained its push for unified exchange rate regime. After much devaluation, the IMF said, the Federal Government had recognised the vulnerabilities facing the economy and taken the steps to boost revenue and improve budget implementation by signing the 2020 Budget before the end of last year.

It advised the CBN to stop defending the naira through dollar interventions and adopt a unified exchange rate regime.

The preliminary findings on the economy, according to the Fund, showed that growth is still recovering, inflation is increasing, and external vulnerabilities rising.

The fund said fiscal reform momentum and recent tightening of monetary policy are welcome, adding that major policy adjustments remain necessary to contain short-term vulnerabilities and unlock Nigeria’s growth potential.

Also, CBN Deputy Governor, Financial System Stability, Mrs. Aishah Ahmad, said despite the renewed confidence in the economy, crude oil price volatility remains a key headwind for Nigeria, given its disproportionate impact on fiscal revenues, reserves accretion, price and monetary stability.