2022: Innovation Took Centre Stage in Banking Sector

Nume Ekeghe reviews events in the banking industry in 2022 and identifies innovation as key factor transforming the sector.

The year 2022 was quite challenging for the Nigerian banking industry as several policies along with global tightening of benchmark interest rates put a strain on profitability and challenged them to be more innovative. 

Coming out of the aftereffects of the 2020 Covid-19 pandemic, the year 2022 was supposed to be that of recovery but the Russia-Ukraine war had put pressure on prices globally causing inflation to spike further. This, in turn, forced central banks to raise interest rates. 

Similar to what other central banks across the world were doing, last year, the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate by 500 basis points within the year. This was part of its efforts at controlling inflation in the country.  

Inflation in the country reached a 17-year high at 21.47 per cent as at November, 2022. The country’s Inflation had been fueled by not just the lingering impact of the Covid 19 pandemic, the Russia-Ukraine war, but also by rising insecurity, exchange rate pressures, climate change and the devastating impact of severe flooding on farmlands this year.   

Inflation, which measures the rate at which prices of goods and services rise had spiraled from 15.6 per cent in January to 21.47 per cent as of November. To curb this, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), like its counterparts across the world had adopted a hawkish stance.  

Benchmark interest rates had been raised four times this year, a record for the committee, which had not moved rates since 2020. At its last meeting in November, the committee had raised benchmark rates to 16.5 per cent following a 150 basis points hike in September.   

Addressing newsmen after the meeting, the governor of the central bank, Mr Godwin Emefiele noted that monetary policy would remain focused on the objectives of price, monetary, and exchange rate stability. “Our policy stance will, accordingly, remain tight to curtail inflation pressure, regulate capital flows, and buoy the naira-dollar exchange rate. Monetary policy decisions will remain balanced, judicious, research-driven, adequate, and supportive of the real economy subject to underlying fundamentals.  

“We will maintain the current tight Monetary Policy stance in the near term, especially in view of rising inflation expectations and exchange market pressures. Though we will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks.” 

CRR Reviewed

Asides this, the apex bank had withdrawn liquidity form the sector, putting a cap on how much banks can play with. Rising from the 287th MPC meeting in September last year, Emefiele had given banks 48 hours to fund their accounts to enable the effect the reviewed CRR. The CBN governor stated that “To the banks, we have increased the CRR and we expect that this decision at this meeting must be seen to be potent and must achieve the effect that the MPC thinks it should achieve.  

“We expect that all the banks in Nigeria must fund their accounts by Thursday which is 48 hours because we will debit them for CRR. We will take their CRR of a minimum of 32.5 per cent, which means that we are going to take liquidity out of their vaults by Thursday. 

“If any bank fails to meet up with this expectation, the decision of the MPC is that we may need to preclude those banks from foreign exchange market on Friday and onwards until they meet this 32.5 per cent. This message is to underscore the fact that MPC is taking this very aggressive decision to rein in inflation and it must yield result. 

“We do not want to face Nigerians in the next few months and we begin to take the blame for not being able to rein in inflation in spite of all the rates that we have raised. So we have decided to adopt a two-pronged approach increase MPR to see interest rates go up and secondly CRR going up to mop liquidity effectively out of the vaults of the banks,” Emefiele had stated.

This policy had seen over N7 trillion withdrawn from the banking industry with the increase in CRR. 

Meanwhile, in an effort to ease the heightened pressure in the foreign exchange market, the apex bank had introduced a policy, which rewards exporters for bringing in their foreign exchange inflow through official channels. 

RT200 FX programme

The policy, RT200 FX programme targets generating $200 billion foreign exchange inflows into the country through non-oil exports over three to five years period. The RT200 FX programme gives a rebate of N35 or N65 to exporters whose inflow comes into the country through the Importers and Exporters window and who sell at the market. 

Through the policy, the CBN said a total of $4.987 billion had been repatriated into the country by non-oil exporters in 2022. This figure he said is higher than $3.190 billion repatriated in 2021.

“Of this amount only $1.966 billion qualified for the rebate program, but only $1.559 billion was sold at the I & E window or for own use,” Emefiele said. 

He also explained that N81 billion had been paid out as rebate to “hard working Nigerian exporters” who channeled their foreign exchange returns through the official window. The CBN governor while noting that the improvement in repatriated funds is a testament to the resolve of the CBN to ensure quick acceleration of the export value chain in the country said the apex bank has been urged to extend rebates to raw materials, adding, “I know that there have been calls to make all exporters eligible for the rebate, and not just limiting it to finished and semi-finished products.” 

Despite the efforts of the CBN to ease foreign exchange pressures, the market had gone berserk during the year with the value of the naira dropping to over N900 to the dollar. This, informed sources disclosed, was spurred by the announcement of the redesigning of the naira. 

The CBN governor had announced that it would be redesigning the higher denominations of the naira in an effort to curb inflation in the economy and reduce the amount of physical cash that is being spent. As the date of the release of the new notes drew near, the value of the naira stabilized around N740 to the dollar on the streets, maintaining the wide gap between the official rate which is still around N452 to the dollar.  

New Naira Notes

With the newly redesigned N200, N500 and N1, 000 notes out on December 15, and the old notes expected the be out of circulation by January 31, 2023, the CBN had introduced the full implementation of the cashless policy. The policy, which is to take effect from January 9, 2023 has continued to raise discourse amongst the populace. With the policy, individuals and corporates alike are restricted to cash withdrawals of N500, 000 and N5 million respectively.  

In the financial sector, the banking industry continued to remain resilient despite the hawkish policies and harsh economic conditions. The Capital Adequacy Ratio (CAR) of the banking system declined in October 2022 to 13.4 but remained within its prudential limit of 10.0 -15.0 per cent. At 40.1 per cent, the Liquidity Ratio (LR) was above its prudential limit of 30.0 per cent. The Non-Performing Loans (NPLs) ratio also improved to 4.8 per cent in October 2022. 

However, with the reactions that followed the cashless policy, the apex bank has revised upward weekly cash withdrawals for individuals and corporates to N500, 000 and N5 million respectively. It also reviewed upward the amount that can be cashed over the counter through third party cheques to N100, 000 as it remained silent on how much can be cashed through withdrawals via Point of Sale terminals (POS) and Automated Teller Machines (ATMs).