The dependence of the Nigerian banking sector on the Central Bank of Nigeira (CBN) has risen intensively this month with banks’ borrowings from the apex bank soared from N323.97 billion in August to N3.03 trillion in September.
Data from the CBN website showed that from the beginning of this month up until the close of business on Friday, September 22, the total borrowings of banks from the CBN stood at N3.028 trillion. This is as against N323.97 billion that was accessed by banks between the beginning of August up until August 22, 2023.
The borrowings were accessed via the Standing Lending facility of the CBN. The Standing Lending Facility (SLF) is a line of short-term credit available for commercial banks to draw on when they need to meet immediate short-term withdrawals from their customers.
A net SLF is often an indication of a liquidity squeeze in commercial banks usually due to the central bank’s monetary policy or a symptom that banks have a lot of non-performing loans that they are unable to recover.
Analysts say the expanding SLFs are due to monetary tightening by the central banks to curb demand for forex as well as curb inflation, which is piling pressure on commercial banks to borrow money.
Over the last two years, the apex bank has embarked on an unprecedented monetary squeeze relying on its Cash Reserve Requirement and Loan to deposit ratio policies to sequester billions from commercial banks on a weekly basis.
Meanwhile, the Monetary Policy Committee of the apex bank continues to maintain that the banking sector remains sound. According to members of the committee in their personal statements at the last meeting held in July, the Nigerian banking industry has so far remained resilient.
A member of the MPC, Adenikinju Festus, who also affirmed the resilience of the banking industry explained that CAR had declined to 11.2 per cent in June 2023 from 13 per cent in May 2023, though still within the prudential requirement of between 10 – 15 per cent.
He furthered that NPL ratio declined from 4.5 per cent in May 2023 to 4.1 per cent in April 2023 while liquidity ratio LR) rose to 48.4 per cent in June 2023, from 44.5 per cent in May 2023. This is above the minimum 30 per cent recommended by the prudential requirement.
Adenikinju noted that both the Return on Equity and Returns on Asset increased between May 2023 and Junel 2023. ROE rose from 22.8 per cent to 32.2 per cent; while ROA increased from 1.7 per cent in May 2023 to 2.3 per cent by June 2023.
Interest margins to total operating income declined from 59.8 per cent in May 2023 to 48.2 per cent in June 2023. Similarly, operating cost to total operating income declined from 70.7 per cent to 62.1 per cent between May and June 2023.
Asides these, he noted that all the measures of banking size, assets, deposits, and credits also rose, with total assets of the banking industry growing by N30.92 trillion or 47.21 per cent between end-June 2022 and 2023. Industry credit increased by N10.75 trillion or 39.73 per cent between end June 2022 and end-June 2023. Gross credit has been on an upward trajectory since 2019. Total industry deposits increased by N15.92 trillion or 37.86 per cent between the end of June 2022 and 2023.
He however stressed that the high operating cost environment of the banking sector should be concerning and needs to be addressed. “In other climes, the ratio is 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, Kenya is 45.2 per cent and Ghana, 46.1 per cent.
