Banking sector has remained resilient, says CBN

Despite challenges in the economy, the Nigerian banking system has remained sound and resilient, according to the Central Bank of Nigeria.

The CBN disclosed this in a statement by a member of the Monetary Policy Committee, Kingsley Obiora, after its last meeting in Abuja.

He stated that, “The banking system remains sound, safe, and resilient. Industry non-performing Loans decreased from 4.9 per cent in December 2021 to 4.2 per cent in December 2022, which was below the maximum prudential requirement of 5.0 per cent.

“The decline in NPLs was attributable to write-offs, restructuring of facilities, Global Standing Instruction and sound credit risk management by banks.

“Total assets of the banking industry grew by N14.36tn or 24.24 per cent from N59.24tn in December 2021 to N73.59tn in December 2022, driven by balances with CBN/banks, investments, and credit expansion to the real sector.”

As a result, he said, total gross credit increased by N5.14tn or 20.93 per cent between the end of December 2021 and December 2022, from N24.57tn to N29.72tn, due to the increase in the industry funding base as well as the CBN’s directive on Loan to Deposit Ratio, which has encouraged banks to increase lending to the real sector of the economy, and business strategy and competition.

He said the increase in credit to the key sectors of the economy was expected to bolster aggregate demand and promote economic growth, job creation, and poverty alleviation.

Overall, he added, policymakers need to keep an eye on pre-existing macroeconomic imbalances and headwinds.

He said the global economic slowdown (especially in the United States, the Euro Area and China), the Russian-Ukraine war, geopolitical fragmentation, weaker currencies in many EMDEs, and rising external debt were all weighing on domestic investment and further exacerbating the existing domestic headwinds.

With China re-opening after three years of zero COVID-19 policy, he said, these headwinds were, however, expected to moderate and improve global growth, but could also be a risk to global inflation.

He said domestically, although oil production had improved, it is still below the OPEC allocation quota of about 1.8 mbpd due to high production costs, oil theft and pipeline vandalism.

Low oil production in the face of high oil prices continued to reduce fiscal space, with consequences for external debt and foreign reserves accretion, he noted.

He said, “Given all the above, tackling runaway inflation and engendering growth continue to be top priorities. Although inflation has started to decelerate, it is still far above the implicit target set by the Bank. Also, monetary aggregates are above their provisional benchmarks and real interest rates are still in negative territory. The Bank must, therefore, not lose focus on containing inflation because it continues to disproportionately affect low-income households and the most vulnerable in the society by reducing their real income and exacerbating inequality and poverty.”