10 months ago
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Financial analysts have projected that several factors, including the management of inflation, exchange rate by the Central Bank of Nigeria and technological advancements will be the major determinants of the performance of the banking sector performance in 2024.
The Head of Financial Institutions Ratings at Agusto and Co, Mr Ayokunle Olubunmi, while speaking at a forum organised by the Finance Correspondents Association of Nigeria on Thursday in Lagos, stated that predicting the exact outcome was difficult due to the dynamic interplay of these elements.
The forum had the theme “2024 Economic Review/Outlook: Impacts of Reforms on Banks’’.
He noted that those who would proactively address the challenges and capitalise on the opportunities presented by those factors would likely emerge stronger and more successful.
He noted that it required flexibility, innovation, and a clear understanding of the shifting landscape.
He outlined some of the themes that could impact the Nigerian banking sector in 2024 to be a more accommodating central bank, hawkish monetary policy, reform of the foreign exchange market, lower FX gains and muted International Trade, among others.
The country has been struggling with forex scarcity for some time, forcing the apex bank to harmonised the different segments of the forex market in June, which caused the naira to depreciate 36.56 per cent from 463.38/$ on June 9 to 632.77/$ on June 14.
The local currency exchanged 1,434.53/$ at the official market on Wednesday.
He also said that expanding Nigerian banks abroad could diversify risk but face new challenges.
He also noted that strengthening banks’ capital base could improve stability and lending capacity.
Olubunmi said that consolidation could create larger, more efficient banks but potentially reduce competition.
He also said that a shake-up in the merchant banking segment could create opportunities for some banks and challenges for others.
He said that reform of the cash reserve requirement when modified could affect banks’ liquidity and profitability.
He also said that enforcing loan-to-deposit ratio compliance could drive credit expansion, but raise concerns about credit quality.
On basel III transition, the analyst said that implementing stricter capital adequacy rules could improve financial stability but raise compliance costs.
He noted that economic slowdown could increase loan defaults and impact banks’ earnings adding that banks might face competition from non-bank players in digital payments.
PricewaterhouseCoopers in its Nigerian Economic Outlook 2024 highlighted seven key trends that will shape the economic outcomes this year.
They include “Executing fiscal reforms that would involve balancing ambition with budgetary implementation, evolving monetary policy stance which is about finding the right framework and instruments to achieve price stability, persisting vulnerability to external pressures with the potential of ‘shocks.’”
“We project a marginal decline in inflation and a 3.1 per cent rise in GDP and note that achieving sustainable growth in 2024 requires balancing ambitious fiscal reforms with effective budget implementation,” the PwC outlook partly said.
