For the first time in a long time, the Nigerian banking sector’s non-performing loans (NPLs) ratio moderated below the five percent prudential threshold to 4.85 percent as of December 30, 2021, from the initially reported numbers above 5 percent (5.1 percent). This shows efforts of the banking institutions and the apex bank in restructuring the loan books of their obligors as well as the gradual uptick of economic activities which has seen business owners, who have taken loan facilities from banks as a result of the pandemic lull which affected businesses, offsetting their debts, the CBN revealed.
The emergence of the coronavirus pandemic has brought to bear tensions on Nigerian businesses which in the process led to economic uncertainties for households and businesses. To this, businesses cleaved to financial institutions for credit facilities to scale up business activities in the face of the unabating tensions and pressures from the global health pandemic. This, in the long run, led to an increased Non-Performing Loans (NPLs) ratio in the banking sector as most businesses were finding it difficult to service their pending debts.
However, as the economy gets full grasp of economic realities with its national output recording consecutive growth of positivity across three quarters in 2021, there was the need to restructure their loan books with the banks as well as the positive business environment which has enabled these obligors to offset pending debts; bringing to moderation the aggregate non-performing loan within the sector.
“The MPC also noted the sustained resilience of the banking system, following the progressive improvement in the Non-Performing Loans (NPLs) ratio from 5.10 percent in November 2021 to 4.85 percent in December 2021- a first in a long time,” CBN said.
Also, the Committee highlighted that the liquidity ratio remained well above its prudential limit at 41.3 percent, though Capital Adequacy Ratio (CAR) declined marginally to 14.53 percent in December 2021 from 14.90 percent in the previous month as it urged the Bank to sustain its firm regulatory surveillance.
Considering the recent developments within Nigeria’s monetary space, the Central Bank of Nigeria also said it recorded an upthrust in total money supply (M3) into the economy during the last quarter of 2021 to 13.77 percent as a result of the growth recorded in net domestic assets (NDA) by 15.58 percent. It further noted that the growth in NDA can be attributed to a rise in the claims on the federal government and other sectors of the economy.
Godwin Emefiele disclosed this in Abuja after the recent MPC meeting where he said the committee reviewed the developments in monetary aggregates during the last quarter of 2021 to see the positive growth. On the other hand, there was a decrease in the Net Foreign Assets (NFA) by about 8.92 percentage points as a result of the decrease in foreign assets holdings of the banking system which consequently lies in favour of more domestic investments.
“The sharp growth in Net Domestic Assets (NDA) was largely attributed to an increase in claims on the federal government and other sectors, while the slowdown in growth of Net Foreign Assets (NFA) resulted from a decrease in foreign assets holdings of the banking system in favour of more domestic investments,” Emefiele said.
Speaking on the money market rates which recorded a fluctuation at the close of last year, he explained that it was precipitated by tight liquidity conditions in the banking system. Thus Emefiele said, “Money market rates fluctuate within and above the asymmetric corridor, reflecting prevailing liquidity conditions in the banking system. The monthly weighted average Open Buyback (OBB) rate increased to 12.75 percent in December 2021 from 10.61 percent in November 2021. The increase in the Open Buyback (OBB) rate reflected the tight liquidity conditions in the banking system,” the CBN governor further explained.