Finance & EconomyNews

CBN Publishes H1 2022 Financial Stability Report

Executive Summary 

The Russia-Ukraine crisis and the resurgence of Covid-19 in China disrupted the global supply chains, heightened commodity prices, and fuelled inflationary pressures. Furthermore, rising inflation prompted the adoption of tight monetary policy stance by most central banks which led to tightening financial conditions with attendant risk to financial stability. Consequently, growth of the global economy earlier projected at 4.40 per cent for 2022 was revised to 3.20 per cent, lower than 6.10 per cent recorded in 2021. 

Growth in Sub-Saharan Africa was estimated at 3.80 percent in 2022, a moderated from 4.60 percent achieved in 2021. In Nigeria, growth for the first half of 2022 declined to 3.32 per cent, from 4.02 per cent in the second half of 2021. This was due mainly to the lingering effects of the Russia-Ukraine crisis, which disrupted supply chains and heightened prices of raw materials and operational costs. Consequently, annual growth was projected to moderate to 3.40 per cent in 2022, from 3.60 per cent in 2021. 

Global prices continued its upward trend in the first half of 2022, reflecting supply-side constraints and lingering effects of an accommodative monetary policy stance adopted to ameliorate the impact of the Covid-19 pandemic. In line with global trends, Inflationary pressures in Nigeria rose in the first half of 2022, owing largely to domestic security challenges which continued to impact on crude oil production, agricultural output and food supply as well as spill-over effects of Russia-Ukraine crisis, which increased freight costs and commodity prices. However, inflationary pressures are expected to moderate slightly from 17.00 per cent in 2021 to 16.10 per cent in 2022. 

Gross external reserves at end-June 2022 decreased by 2.66 percent to US$39.16 billion, from US$40.23 billion at end-December 2021. The low accretion to reserves was due mainly to reduction in crude oil production and high debt-service obligations. 

The Bank sustained its implementation of various supervisory measures including virtual examinations, the Global Standing Instruction (GSI) policy, and also issued guidelines for credit guarantee companies. This boosted public confidence in the banking industry and enhanced safety and soundness of banks, as evidenced by the Financial Soundness Indicators (FSIs), which were within prudential requirements. 

The ratio of non-performing loans net of provisions to capital for commercial, merchant and non-interest banks (CMNBs) increased marginally to 4.95 per cent at end-June 2022, from 4.85 per cent at end-December 2021. Similarly, the ratio of interest margin to gross income decreased marginally to 47.93 per cent during the review period, from 48.59 per cent at end-December 2021. Also, the ratio of non-interest expenses to gross income declined to 65.04 per cent at end-June 2022, from 65.14 per cent at end-December 2021. The ratio of personnel expenses to non-interest expenses declined to 25.47 per cent at end-June 2022, from 29.38 per cent at end-December 2021. 

Results of the stress test showed that the banking industry could withstand a shock of “up to 100 per cent increase” in the industry NPLs, as the post-shock industry CAR would remain above the regulatory requirement of 10 per cent. The sector concentration stress test showed that the industry could withstand “up to 20.00 per cent shock” to oil and gas exposures as post-shock CAR would decline marginally below the regulatory requirement. The results also showed resilience to obligor credit concentration risk as the CAR remained above the regulatory threshold of 10.0 per cent. 

The Bank sustained its interventions to households and businesses adversely impacted by the Covid-19 pandemic through the implementation of the Healthcare Sector Intervention Facility and Targeted Credit Facility, amongst others. 

Similarly, the Bank continued its efforts to ensure that financial institutions comply with the redesigned Credit Risk Management System (CRMS) thereby strengthening credit administration as indicated by improved credit records. Thus the total number of credit records on the database increased by 10.00 per cent relative to the preceding period. Consumer confidence in the banking industry was enhanced with the resolution of 1,399 complaints entailing refunds to the complainants and closure of 1,321 customers’ complaints against financial institutions during the review period. The total complaints resolved and closed increased by 4.7 and 20.64 per cents, respectively. 

In the first half of 2022, the Bank sustained its efforts in the implementation of eNaira, Africa’s first Central Bank Digital Currency (CBDC), extended the charges-free regime for eNaira transactions, and commenced the integration of the digital currency with Nigeria Inter-Bank Settlement System (NIBSS) instant payment platform. At end-June 2022, the number of eNaira wallet downloads, onboarded customers and activated wallets were 807,920; 244,340; and 182,790, respectively. These indicate increases of 32.45, 35.52, and 45.11 per cents, respectively, above the levels at end-December 2021. 

The capital market recorded bullish performance as evidenced by an increase in aggregate market capitalisation by 21.31 per cent to N50.18 trillion, at end-June 2022, from N43.12 trillion, at end-December 2021. The pension industry also grew with total enrolment in pension schemes, increasing by 1.25 per cent to 9.71 million, from 9.59 million in the previous half year, largely driven by the increased adoption of the Contributory Pension Scheme (CPS) by States and Local Governments as well as the steady uptake of the Micro Pension Plan in the informal sector. The net pension Assets under Management (AuM) grew by 6.30 per cent to N14.27 trillion, from N13.42 trillion at end-December 2021. Similarly, the insurance industry recorded an increase in its total assets by 2.41 per cent to N2.28 trillion, from N2.23 trillion at end-December 2021. The net premium income and gross claims rose by 16.89 and 7.71 per cent to N260.34 billion and N174.78 billion at end-June 2022, from N222.72 billion and N162.27 billion at end-December 2021, respectively. 

The key risks to financial system stability during the review period include elevated inflation, exchange rate pressures, spill-over effects of the Russia-Ukraine crisis, shortage of petroleum products, cyber-risk from increased use of digital financial services, as well as increased operating costs and operational risks. Consequently, the Bank and other financial sector regulators implemented appropriate measures to mitigate these risks. Overall, the outlook for financial stability remained optimistic, given the robust policy measures adopted by the Bank and other financial sector regulators towards enhancing the resilience of the financial system

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