Latest data released by the Central Bank of Nigeria (CBN) indicates significant growth in the country’s banking industry, with total assets surging by N30.92 trillion or 47.21 percent year-on-year, reaching a total of N96.4 trillion between the end of June 2022 and the end of June 2023.
Details pertaining to the banking sector’s total assets and its gross credit to the economy, which have consistently shown upward trajectories during this period, were presented in the Monetary Policy Committee’s personal statement released over the weekend.
The Monetary Policy Committee (MPC) convened in July against a backdrop of global growth concerns due to geopolitical tensions, elevated energy prices, and unwavering anti-inflation policy stances.
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During their review of the banking system’s stability, the committee members, including acting CBN governor Shonubi Folashodun, Obiora Kingsley L., and Sanusi Aliyu, observed that the banking system remains secure, stable, and resilient.
Key financial metrics were highlighted by the committee, indicating that as of the end of June 2023, the Capital Adequacy Ratio (CAR) stood at 11.2 percent, surpassing the regulatory minimum of 10 percent.Additionally, the Non-Performing Loans (NPLs) ratio remained at 4.1 percent, below the regulatory maximum of 5 percent. The Liquidity Ratio also registered at 48.4 percent, well above the regulatory minimum of 30 percent.
However, the members expressed worry that developments in the Monetary Sector indicate rising liquidity in the economy which could undermine the efforts to tame inflation.
Growth in liquidity has arisen from several sources: cash reserve requirement (CRR) normalisation, repayment of matured CBN bills, maturing Federal Government Bonds, Nigerian Treasury Bills (NTBs), and fiscal disbursements to the three tiers of government.
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During the period, May to June 2023, the Monetary Base decreased while the Broad Money Supply (M3) increased. Although both were below their provisional benchmarks, growth in liquidity is of concern in a period of tight monetary policy aimed at taming inflation.
According to Shonubi, growth of key monetary aggregates in the review period highlighted the challenge of excess liquidity in the economy.
Annualised growth in broad money supply, at 48.71 per cent vis-à-vis the programmed target of 28.21 percent, was driven by expansion in both net domestic and net foreign assets.
“Overall, increased systemic liquidity in June 2023, on account of higher FAAC allocation, temporary effect of CRR normalisation and sustained increase in banking system credit, were major contributors to liquidity surfeit and expansion of monetary aggregates,” he stated.
Overall, the transmission of monetary policy according to the members must be strengthened to ensure that market indices respond optimally to the bank’s rate adjustments and in line with liquidity profile of the economy.