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Threats to Domestic Bank Stability Remain Minimal for Now – CBN

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Despite the ongoing fallout from the coronavirus pandemic, the threats to Nigeria’s domestic banking system stability remain minimal for now, according to the Central Bank of Nigeria (CBN).

Latest data revealed by members of the CBN Monetary Policy Committee (MPC) in their personal statements following the May 2020 meeting released by the CBN this week, shows positive indicators for the banking system stability despite a deterioration in the macro environment.

“Despite the headwinds and rapid expansion of credit (gross credit increased by N3.0 trillion between end-May 2019 and end-April 2020) driven by the Loan to Deposit Ratio (LDR) policy. Non-performing loans (NPLs) ratio stood at 6.6 per cent at end April 2020, compared with 11.0 per cent at end April 2019, while other prudential ratios remain robust,” said Aishah Ahmad, a member of the MPC.

Banking sector credit to private sector rose by 7.4 percent in April from 5.2 percent in the preceding month. Data provided by the MPC members show that the quantum of new credits to vital sectors of the economy continues its upward path.

The overall averages for both the Open Buy Back (OBB) and interbank rates during the period (March 25 to April 27 2020) were 6.62 percent and 6.01 percent, respectively – reflecting the relative calm pervading the financial market despite rising inflation.

“The scorecard of the banking system portrays stability and resilience even in this difficult era,” said Isa-Dutse Mahmoud.

“The Return on Assets (ROA), Return on Equity (ROE) and Total Operating Cost to Total Operating Income Ratio indicate that the banking system is profitable and compares quite favourably with peer countries.

The banking system thus is in a position, with a supportive policy mix, to promote the growth agenda by channeling more credit to the real economy,” Mahmoud said.

Total gross credit increased by N3.041 trillion from N15.567 trillion at end-May 2019 to N18.608 trillion at end-April 2020, CBN data from the MPC members statements show.

The credit growth was largely driven by manufacturing, consumer credit, general commerce, information and communication, and agriculture.

Though key CBN bank stability ratios and Financial Soundness Indicators (FSIs) – capital adequacy ratio, non-performing loans (NPLs) ratio, earnings, etc., have thus far been quite robust, the industry is not totally insulated from the adverse impacts of the global economic and financial weakening arising from COVID-19 and soft oil prices, according to Edward Adamu, a member of the MPC.

“In April 2020, credit to the oil and gas sector accounted for about 26 per cent of the industry’s total loans and advances, making the sector the single most important in terms of credit exposure of the banking system,” Adamu said.

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