Tag: Banks

The Securities and Exchange Commission (SEC) has disclosed that banks raised N2.2 trillion from the capital market in 2024 to meet the Central Bank of Nigeria’s (CBN) new recapitalization requirements.

It would be recalled that in November 2024, the SEC announced that banks had raised N1.7 trillion from the capital market in their efforts to meet the CBN’s new minimum capital base demand.

This revelation was made by the SEC Director-General, Dr. Emomotimi Agama, who noted the critical role of the capital market in fostering economic growth. “For all of the issuance that happened in the market last year, we were able to raise more than N2 trillion, precisely about N2.2 trillion for the banks, which means the capital market is actually the element that helps to galvanize growth and development,” he said.

Dr. Agama stated that banks are vital to the nation’s economic development and recounted the skepticism that initially greeted the CBN’s recapitalization directive. “Last year, the Central Bank came up with a regulation to increase capital for all banks. Many people thought it was too daunting a task for the capital market. However, where else will the banks, who already loan money short term, get money from other than the capital market?”

The statement, issued in Abuja on Wednesday, also revealed other achievements of the capital market in 2024. According to the SEC, Collective Investment Schemes (CIS) in the country increased to over N3 trillion during the year.

Explaining the benefits of CIS, Dr. Agama stated that, “In the collective investment schemes, you get a bucket of shares and ask people to invest. If you are investing through a collective investment scheme, you are likely investing in ten companies via one route rather than directly in a single company.

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This reduces risk, diversifies potential, and mitigates market volatility.”

He added that CIS offers an accessible investment option for Nigerians unfamiliar with market dynamics, as professionals manage funds on behalf of investors.

Beyond CIS, the SEC Director General stressed the critical role of the capital market in funding infrastructure development. “There is no economy that can grow without infrastructure, and the only place you can get long-term capital for infrastructural development is the capital market,” he said. He warned against relying on the money market for long-term projects, describing such practices as a “recipe for failure.”

To enhance efficiency, Dr. Agama outlined various reforms undertaken by the SEC, including reducing the approval timeline for capital market applications. “Time to market is now 14 days if all documents are in order. Previously, this process could take up to two years,” he said. He also highlighted the introduction of E-offering platforms, which allow Nigerians to make investments using mobile phones without visiting banks or other physical locations.

Dr. Agama expressed optimism about the potential impact of the Investments and Securities Bill 2024, currently awaiting presidential assent. He described the bill as a comprehensive framework for market regulation and development, positioning the capital market as a key driver of the nation’s economic growth.

“We believe strongly that once the process with the National Assembly is concluded, the President will give his assent. This bill is a vehicle for development for this nation, and we want to mainstream the capital market into national development,” he concluded.

The SEC’s initiatives and the capital market’s performance in 2024 underscore its pivotal role in economic transformation and its capacity to meet critical national financial needs.

Credit to the Private Sector (CPS) surged by 27.3 per cent year-on-year to N75.96 trillion in November, Central Bank of Nigeria (CBN) economic report, has shown.

The uptick in credit to key sectors of the economy has been attributed to CBN’s reduction of Laon to Deposit Ratio (LDR) from 65 per cent to 50 per cent and monitoring of banks’ compliance with the policy implementation.

Analysts at Codros Securities, said: “We believe the continuous increase in CPS reflects the impact of CBN’s enforcement of the 50 per cent loan-to-deposit ratio and the conversion effect of currency depreciation on banks’ foreign-denominated assets. Similarly, Credit to the Government surged to a record high of N39.62 trillion in November, representing a 54.4 per cent year-on-year increase from N25.66 trillion in November 2023, indicating increased government borrowings from domestic banks for deficit financing,” he said.

The analysts said that overall, broad money supply (M3) grew by 51.3 per cent year-on-year to N108.97 trillion, following increases across quasi (+61.3 per cent year-on-year) and narrow (+38 per cent year-on-year) money supply.

On a month-on-month basis, the CPS rose by 2.5 per cent in November

 “We expect the CPS to continue expanding in the short term as we believe the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for deposit money banks (DMBs) will continue to drive the willingness of commercial banks to create risk assets. Nonetheless, we acknowledge that the increased monetary policy tightening measures may tether CPS growth,” the analysts said.

Inflation Rate in Nigeria increased to 34.60 per cent in November from 33.88 per cent in October of 2024.

Inflation rate in Nigeria averaged 13.90 per cent from 1996 until 2024, reaching an all time high of 47.56 per cent in January of 1996 and a record low of -2.49 per cent in January of 2000.

The CBN recently said, its decision to cut LDR from 65 per cent to 50 per cent was a significant approach to put soaring inflation under check.

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The apex bank said current LDR aligned with the CBN’s current monetary tightening plan. Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50 per cent, in a similar proportion to the increase in the Cash Reserve Ratio (CRR) for banks.

It directed all commercial banks to maintain the LDR level and ensure that average daily figures are continually applied to assess compliance.

It explained that LDR rate is crucial in assessing banks’ capacity to lend, manage risks and ensure financial system stability, stating that LDR evaluates a banks’ lending activities, relative to their deposit base.

 “We try to combat inflation in different ways but the ultimate objective is to combat inflation. And that is exactly what central bank is doing today. Whatever it takes to fight inflation, we’re going to do that,” it stated.

The apex bank said fighting inflation will also require reducing the volume of credit banks can lend to customers and also boosting the quality of such credits.

 “Sometimes it’s not the quantum of credit that you’re able to churn out that matters, but the quality of the credit you’re able to package. In line with the CBN mandate, the apex bank is utilising orthodox monetary policy to manage the economy and LDR is one of the metrics used to evaluate banks’ lending activities, relative to their deposit base,” it stated.

On how the apex bank came to rely on LDR to control inflation, it said it started since 2019, when it was observed there was a massive slowdown in credit growth.

 “This policy was created to ensure that money flows into the real sector of the economy. The LDR then was set at 60 per cent, and later increased to 65 per cent before it was last week reduced to 50 per cent.  And if you want to combat inflation using the orthodox method, you need to balance what you do with the monetary policy tools and other measures,” it said.

• N2.3tr increase in one month

Banks’ credits to the private sector rose by about N2.3 trillion in July 2024 to about N75.5 trillion, representing an increase of about 34 per cent over the past one year.

Latest data on credit to the private sector (CPS) obtained from the Central Bank of Nigeria (CBN) indicated that banks’ loans and other facilities to the private sector have increased by nearly a third, underlying the resilience and support of the banking sector to the economy.

The report showed that CPS rose by 33.7 per cent to N75.48 trillion in July 2024 as against N56.46 trillion recorded in July 2023, an increase of N19.02 trillion.

A breakdown indicated that CPS increased by 3.1 per cent or N2.29 trillion to N75.48 trillion in July 2024 compared with N73.19 trillion in June 2024.

The CPS includes loans, trade credits and other account receivables and supports provided by banks to the private sector within a period. The CPS is a global measure of the banking sector’s balance sheet resilience and contribution to national economic agenda.

The latest report underlined the continuing growth in banks’ operations and deployment of funds to the productive sector of the economy.

A report by the CBN had shown that Nigerian banks had seen significant increase in deposits during the first half of this year. The report indicated that banks’ demand deposits rose from N26.7 trillion recorded at the end of December 2023 to N33.0 trillion by June 2024.

Banks had sustained steady growth in deposits across the quarters. Total demand deposits in the first quarter ended March 2024 had risen by 8.1 per cent to N28.9 trillion. In the second quarter ended June 2024, banks’ deposits increased by14.3 per cent to N33 trillion.

Nearly all banks had seen significant increases in deposits in recent period, providing the headroom for most banks to create new loans and advances.

Experts said banks are in position to continue to create more loans, citing aggressive growth strategies by banks and enabling regulatory environment.

Banks’ operational reports had shown significant growths in deposits in 2023. For instance, audited reports for the year ended December 31, 2023 showed that Access Holdings’ deposits rose from N6.10 trillion in 2022 to N9.4 trillion in 2023. Zenith Bank grew deposits from N5.86 trillion to N11.43 trillion. FBN Holdings recorded deposits of N7.85 trillion in 2023 as against N5.25 trillion in 2022. United Bank for Africa (UBA)’s deposits doubled from N4.83 trillion in 2022 to N9.32 trillion in 2023. Guaranty Trust Holding Company’s deposits increased from N3.47 trillion to N5.22 trillion.

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A recent report on capital importation into the country had also shown that banks attracted nearly two-third of capital importation into the country. Analysts had said this was a measure of confidence in the Nigerian banks as foreign investors gradually take more active stance in the nation’s economy.

Experts agreed that increase private sector credit implies a major boost for the economy as there is a link between credit to the private sector and the economic growth. Several studies have continuously found that increased lending by banks directly leads to increase in Gross Domestic Products (GDP).

Experts at Cordros Capital said the trend in credit to private sector may continue in the period ahead.

“We believe the re-enforcement of the CBN’s limit on Deposit Money Bank’s loans-to-deposits macro-prudential ratio will continue to drive the willingness of commercial banks to create risky assets over the short to medium term,” Cordros Capital stated.

Analysts however noted that the apex bank’s intensified monetary policy tightening measures could tether the magnitude of growth going forward.

A study published by the CBN concluded that “credit is growth-enhancing, even when trade openness, monetary policy, investment climate and infrastructure are low.” The study found that private sector credit increases economic growth.

The balance sheet strength of banks also determine the flow of credits, with the continuing increase in lending amidst macroeconomic headwinds underpinning Nigerian banks’ resilience and stability.

In a study on ‘Balance Sheet Strength and Bank Lending During the Global Financial Crisis’, researchers at International Monetary Fund (IMF) examined the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy.

The study found that “banks with strong balance sheets were better able to maintain lending during the crisis”.

According to the study, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks.

“However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework,” IMF report stated.

Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe, said the growth in credit to the private sector could be attributable to increase in economic activity.

He however pointed out that other factors such as inflation and devaluation could moderate such increase

Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the credit outlook remains cautious, calling for expansive distribution of credits across all tiers of companies and sectors.

According to him, there are major concerns in terms of distribution of credits across sectors and companies with small businesses, which contribute more to job creation and economic inclusion, not likely to benefit much.

He noted that banks tend to be wary of credit risk concerns associated with lending to small businesses and certain sectors, adding that efforts should be made to drive inclusive and stable credit access to all sectors including growth and employment elastic sectors such as agriculture, manufacturing, real estate, mining and construction among others. 

CBN Governor, Dr. Olayemi Cardoso, has said the ongoing recapitalisation would strengthen banks further to drive the $1 trillion national economic target and support stable growth in the economy.

According to him, additional capital would not only provide substantial buffer for banks against potential economic challenges, but enhance Nigeria’s banks capability to support massive economic growth and play competitively globally.

Experts agreed that considering the increase changing dynamics in the banking sector and the overall economy since the last recapitalisation, it has become necessary to strengthen the banks’ financial positions.

• Experts optimistic most sectors will over perform by year end

Despite economic headwinds that stifled the growth of the major commanding heights of the economy last year, the nation’s banking and other financial services sector, in a manner of speaking, had a bumper harvest judging by its positive fundamentals, The Nation has learnt.

Giving fresh insights of the performance trajectory of nation’s Financial & Professional Services (FPS) sector last year in its State of Enterprise (SOE) Report, EnterpriseNGR, a member-led organisation at the forefront of championing the advancement in the FPS sector said the sector achieved remarkable success thus far despite the challenging economic environment characterised by heightened inflation, increased production costs, exchange rate depreciation and other poor macroeconomic fundamentals.

The SOE Report is an annual publication that showcases the accomplishments and contributions of the Financial and Professional Services (FPS) sector to Nigeria’s people, businesses, government, and economy.

The SOE 2024 Report was developed with strong contributions from some of EnterpriseNGR’s member organisations, including Chapel Hill Denham, Coronation Merchant Bank Ltd, Custodian Investment Plc, Investment One Financial Services Ltd, Lotus Bank Ltd, Meristem Securities Ltd, Templars Law, Udo Udoma & Belo Osagie, and Wigwe & Partners. It also leveraged data provided by different institutions such as the National Bureau of Statistics, Central Bank of Nigeria, Securities and Exchange Commission, Nigerian Exchange Group, FMDQ Group, National Insurance Commission, and National Pension Commission.

Addressing newsmen at the company’s corporate headquarters, in Lagos, Obi Ibekwe – Chief Executive Officer, at EnterpriseNGR, in company of members of her team including: Lami Adekola, Director of Policy and Public Affairs, Omotayo Muritala, Head of Research, and Head of Corporate Services, Uchechi Oluwole-Akinwale, said it was heartening to note that the sector had significant positive impacts on people, businesses and the economy across the nine classified sub-sectors: Banking, Insurance, Capital Markets, Asset Management, Pensions, Non-interest Finance, FinTech, Professional Services and Sustainable Finance.

Specifically, she said, “The banking sub-sector led other sub-sectors on many performance indicators and demonstrated direct benefits to the economy and people. Let’s look at the numbers. Nigerian banks and other financial services accounted for 4.6% of GDP which translates to financial institutions accounting for approximately ₦5 for every ₦100 generated nationally in 2023, up from about ₦4 in 2022.

“The collective Deposit Money Banks had total assets (of ₦121 trillion) that are equivalent to half of the national gross domestic product. But this is not just about numbers; it is about the significant supportive role of the Banking sub-sector in facilitating necessary funds to support businesses and the productive sector. The sub-sector’s role in tax revenue was equally commendable, ranking third out of the 23 economic sectors, in income tax and VAT generation to the government coffer.

“The Insurance sub-sector saw impressive momentum in 2023, with gross premium written reaching a ₦1 trillion mark. Even though this growth was driven by a regulatory intervention, such as increased motor insurance rates, the sub-sector paid 36% more claims than in 2022, an indication that the Insurance sub-sector is rising to its responsibility to protect policyholders against adverse financial and economic consequences.”

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Pressed further, she said, “The capital markets experienced significant expansion, with the All Share Index (ASI) increasing by 46%. The last time the markets achieved something close to this was in the wake of the pandemic (in 2020). Also, the Market capitalisation jumped 47% to about ₦41 trillion, facilitating substantial trading transactions and business activities. When you look at performance by sector, the Oil & Gas sector emerged as the growth leader (recording a phenomenal 126% gain). The performance of the Oil & Gas sector can be linked to policy changes such as the suspension of subsidies.

“Closely linked to Capital Markets is the Asset Management sub-sector, which drives much of the activity in the markets. The sub-sector, known for managing assets, is also laying the foundation for national future growth through collective investments. The total net asset value (NAV) for all collective investment schemes soared by almost 50% in 2023, and the number of registered mutual funds increased to 144 from 133 in 2022. This growth highlights the growing confidence in the markets.”

The Pensions sub-sector, she also observed, “is one of Nigeria’s regulatory success stories, steadily building a secure future for millions of employees. With over 10 million contributors, the sub-sector has accumulated over ₦18 trillion in investments, with 65% of this invested in government securities. By 2023, the sub-sector had paid over ₦400 billion in retirement benefits, and about ₦36 billion to contributors temporarily out of jobs, in 2023. The Pensions sub-sector is not just a growing force in the economy, it is a safety net.

“Non-interest Finance is broadening financial inclusion by providing access to many Nigerians who do not engage in traditional financial services. The sub-sector boasts a market size worth ₦2.5 trillion, growing by ₦1 trillion in a year. Strong demand for ethical investments is driving numbers in the subsector. A key example is the issuance of a ₦150 billion sovereign sukuk in 2023, which was oversubscribed by more than 400%. The sub-sector is aligning financial practices with ethical values to grow national investments.”

Besides, she said, the nation’s FinTech sub-sector which is supports digital payments and lending also fared better in the intervening period as mobile money operators processed 140% more transaction values ₦46.6 trillion in 2023 compared to ₦19.4 trillion in 2022 with personal loans seeing a significant rise of 19%, increasing to ₦2.28 trillion from ₦1.92 trillion between the second and third quarters of 2023.

“Professional Services comprising firms such as accountants, management consultants, and legal advisors, played a crucial role in helping businesses navigate challenges and seize opportunities. In 2023, their contributions to the economy were substantial, supporting various industries and playing a critical role in economic integration, revenue generation, risks and talent management. The professional service firms are a significant part of the Professional, Scientific and Technical Services sector that contributed 3.2% to national output in 2023.”

While noting that the performance of the FPS sub-sectors in 2023 underscores the pivotal role of FPS in Nigeria’s economy, particularly its contributions to governments, businesses and people, the EnterpriseNGR however noted matter-of-factly that several challenges, including low levels of technology and innovation, talent and human capital deficit, and non-accommodative macroeconomic policies, such as inflation and exchange rate volatility, need to be addressed to accelerate growth in each of the sub-sectors.

These enormous challenges, she stressed, call for a collaborative effort from federal and state governments, industry regulators, policymakers and operators to advance the FPS sector and support the growth and development of Nigeria’s wider economy.

Echoing similar sentiments, the duo of Adekola and Muritala, while acknowledging that reforms are happening in key areas of the economy, were optimistic that some positive changes would be recorded by the end of 2024.

The banking sector they noted has a long-standing lead over all the other sub-sectors. The recapitalisation of the banking sector will have an impact just as the capital markets, asset management to mention just a few.

• N20.3tr added in one year

Banks’ credits to the private sector rose by N20.31 trillion to N73.12 trillion in first half  2024 as they continued to deploy additional deposits to fund businesses across sectors of the economy.

Latest data from the Central Bank of Nigeria (CBN) indicated that credit to the private sector (CPS) rose by N20.31 trillion or 38.5 per cent to N73.12 trillion by June 2024 compared with N52.81 trillion recorded in comparable period of 2023.

The CPS includes loans, trade credits and other account receivables and supports provided by banks to the private sector within a period. The CPS is a global measure of the banking sector’s balance sheet resilience and contribution to national economic agenda.

Nearly all banks had seen significant increases in deposits in recent period, providing the headroom for most banks to create new loans and advances.

Total deposits in the banking sector had risen by 63 per cent from about N70.5 trillion in 2022 to about N115 trillion in 2023.

The growth in lending and supports to the private sector underlined the resilient balance sheet of banks and banks’ response to the apex bank’s push for increased lending to bolster economic activities.

The data illustrate the importance of the banking sector emerging as the backbone of the country’s economic renewal agenda.

A month-on-month breakdown however showed a marginal decline of 1.6 per cent from N74.31 trillion in May 2024 to N73.12 trillion in June 2024. Experts attributed the decline to the impact of Central Bank of Nigeria (CBN)’s monetary tightening stance in the quest to rein in rising inflation.

Banks’ lending and supports to the private sector had risen from N71.21 trillion in March 2024 to N72.92 trillion in April and topped N74.31 trillion in May 2024, representing a month-on-month increase of 1.9 per cent and 2.4 per cent for May and April 2024 respectively.

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Banks’ operational reports had shown significant growths in deposits in 2023. For instance, audited reports for the year ended December 31, 2023 showed that Access Holdings’ deposits rose from N6.10 trillion in 2022 to N9.4 trillion in 2023. Zenith Bank grew deposits from N5.86 trillion to N11.43 trillion. FBN Holdings recorded deposits of N7.85 trillion in 2023 as against N5.25 trillion in 2022. United Bank for Africa (UBA)’s deposits doubled from N4.83 trillion in 2022 to N9.32 trillion in 2023. Guaranty Trust Holding Company’s deposits increased from N3.47 trillion to N5.22 trillion.

A recent report on capital importation into the country had shown that banks attracted nearly two-third of capital importation into the country. Analysts had said this was a measure of confidence in the Nigerian banks as foreign investors gradually take more active stance in the nation’s economy.

Experts agreed that increase private sector credit implies a major boost for the economy as there is a link between credit to the private sector and the economic growth. Several studies have continuously found that increased lending by banks directly leads to increase in Gross Domestic Products (GDP).

Experts at Cordros Capital said they expected the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for Deposit Money Banks (DMBs) to continue to drive the willingness of commercial banks to create risk assets.

A study published by the CBN concluded that “credit is growth-enhancing, even when trade openness, monetary policy, investment climate and infrastructure are low.” The study found that private sector credit increases economic growth.

The balance sheet strength of banks also determine the flow of credits, with the continuing increase in lending amidst macroeconomic headwinds underpinning Nigerian banks’ resilience and stability.

In a study on ‘Balance Sheet Strength and Bank Lending During the Global Financial Crisis’, researchers at International Monetary Fund (IMF) examined the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy.

The study found that “banks with strong balance sheets were better able to maintain lending during the crisis”.

According to the study, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks.

“However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework,” IMF report stated.

Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe, said the growth in credit to the private sector could be attributable to increase in economic activity.

He however pointed out that other factors such as inflation and devaluation could moderate such increase

Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the credit outlook remains cautious, calling for expansive distribution of credits across all tiers of companies and sectors.

According to him, there are major concerns in terms of distribution of credits across sectors and companies with small businesses, which contribute more to job creation and economic inclusion, not likely to benefit much.

He noted that banks tend to be wary of credit risk concerns associated with lending to small businesses and certain sectors, adding that efforts should be made to drive inclusive and stable credit access to all sectors including growth and employment elastic sectors such as agriculture, manufacturing, real estate, mining and construction among others. 

CBN Governor, Dr. Olayemi Cardoso, has said the ongoing recapitalisation would strengthen banks further to drive the $1 trillion national economic target and support stable growth in the economy.

According to him, additional capital would not only provide substantial buffer for banks against potential economic challenges, but enhance Nigeria’s banks capability to support massive economic growth and play competitively globally.

Experts agreed that considering the increase changing dynamics in the banking sector and the overall economy since the last recapitalisation, it has become necessary to strengthen the banks’ financial positions.