2024 Banking Industry Report

Overview of the Report

The Nigerian banking industry (the Industry) has been resilient despite the global geopolitical turmoil, adverse regulations and the prevailing macroeconomic conditions. During the financial year ended 31 December 2023, the structure of the Industry remained stable as only The Alternative Bank Limited, which hitherto served as the non-interest window of Sterling Bank Plc, was licensed as a full-fledged bank. Total assets and contingents grew by 53.8% year-on-year and crossed the ₦100 trillion mark to stand at ₦128.8 trillion ($143.2 billion @₦899.4/$) as at 31 December 2023. While the steep naira devaluation bloated the asset base, aggressive deposit mobilisation on the back of branch expansions as well as partnerships with FinTechs and exporters were growth drivers during the year under review.

In the financial year ended 31 December 2023, the banking industry’s profitability was bolstered by the 50.1% naira devaluation, investment securities and traditional lending activities. However, the uptick in the funding costs and rising operating expenses based on inflationary pressures and business expansions moderated performance. Overall, profit before taxation surged by 168.4% to an all time high of ₦3.5 trillion. The profitability ratios also improved with the pre-tax return on average assets (ROA) of 3.3% (FY 2022: 1.7%) and pre-tax return on average equity (ROE) of 44.9% (FY 2022: 21.6%) in FY 2023.

In the near term, the banking industry will be largely shaped by the recapitalisation exercise on the back of the minimum paid-up capital directive, notwithstanding the 31 March 2026 deadline. Mobilisation of low-cost deposits will also be prioritised given the prevailing high interest rates emanating from the contractionary stance of the monetary authority. We believe the high yield environment, relative improvement in the foreign exchange market’s liquidity and adoption of a methodological approach to the cash reserve ratio (CRR) computation will uphold the Industry’s performance. However, we anticipate some decline in profitability based on the reversion to a nil net long open position, rising funding costs and raging inflationary pressures. We also believe the prevailing macroeconomic headwinds will further test the resilience of the Industry’s risk management framework.