CEM REPORT, FINANCE | Nigeria’s Banking Industry loan book recorded an increase of 27 per cent by the close of the 2022 financial year.
The growth has been attributed to increased activities at the differentiated cash reserve requirement (D-CRR) window, higher deposit base and naira devaluation.
This is as detailed in the 2023 comprehensive review of Nigeria’s banking industry by Agusto & Co.
The report notes that the banking industry has backed this growth with additional investment in credit risk management and capital raising exercises.
Agusto & Co. continues that the President Bola Ahmed Tinubu-led administration’s economic reforms will provide growth opportunities for the Nigerian Banking Industry.
“Following the inauguration of President Tinubu, the new administration has implemented several reforms aimed at reversing prevailing macroeconomic imbalances. Agusto & Co. believes that the reforms including the removal of the petrol subsidy, exchange rate harmonisation, tax reforms and restoration of a methodological framework for calculating the cash reserve requirements (CRR) provide growth opportunities for the Industry.
“For instance, we believe many banks will take advantage of rising liquidity following the eradication of arbitrary CRR debits to grow the loan book, especially since the working capital needs of businesses continue to rise given the weakening domestic currency and other inflationary pressures.”
While the rating agency expects the non-performing loan ratio of the banking industry to remain below 5 per cent at the close of 2023, it is also optimistic that new loan disbursement will reach relevant sections to further grow the economy.
“However, the non-performing loan ratio of the Industry is expected to remain below 5% as at FYE 2023 as many banks leverage their past experiences from recessions and the pandemic to navigate this stressed cycle.
“We expect that new loan disbursements will largely flow to traditional sectors including manufacturing, oil and gas and general commerce amongst others and resilient players given the volatile operating terrain. Nascent sectors such as renewable energy, health and gender-based businesses will also continue to gain.”
“Nevertheless, some pressures in asset quality are expected, considering the lower consumer purchasing power and dwindling margins of some industries,” according to Agusto & Co.
In the report experts at Agusto & Co. commended the resilience of the Nigerian Banking Industry despite the raging macroeconomic and regulatory headwinds that have constrained performance in the last three years.
It noted that innovation and malleability of the banks have upheld the industry.
“Innovation and malleability of the banks as reflected in the transition to the financial holding company structure and upscale of banking license by some players have upheld the Industry.”
“Collaborations with financial technology companies (FinTechs), domestic and international development finance institutions (DFIs), among other partnerships have also supported the Nigerian banking industry,” it added.