Net banking system liquidity position rose by 267% to N587.21 bn in 2019- CBN

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…as Industry NPL ratio drops to 6.1% in 2019

By Kayode Tokede

The Central Bank of Nigeria (CBN) has disclosed that net banking system liquidity position rose by 267 per cent from N160.03 billion in December 31, 2018 to N587.21 billion in December 31, 2019.

This extract is from the personal statement of January Monetary Policy committee (MPC) meeting with witness increase in Cash Reserve Ratio (CRR) to 27.5 per cent from 22.5 per cent, while other rates remained unchanged.

However, the members disclosed that the banking industry Non-Performing Loan (NPL) dropped to 6.1 per cent as at December 2019 from 11 per cent in April last year.

They expressed that the banking industry in 2019 had growth in key financial parameters that include, Return on equity and assets.  The Deputy Governor, Corporate Services, CBN who is a member of the MPC, Mr. Edward  Adamu said the banking industry is resilience with the  NPL dropping to about six per cent in 2019. He noted that the decline in NPL is encouraging, considerable with the growth in new credit to key sectors like agriculture and manufacturing.

A Professor at University of Ibadan, who is also a member, Prof. Festus Adenikinju in his personal statement said, “ The financial Soundness Indicators are quite robust. NPLs ratio fell from 6.6per cent in October 2019 to 6.1per cent in December 2019.

“Capital adequacy ratio, and Liquidity ratio fall within prudential requirements. Returns on equity and assets were better in December 2019 compared to October 2019.

“The increase in lending by over N2 trillion between May and December 2019 is a positive outcome of CBN monetary policies.

“The new lending went to critical sectors like manufacturing, agriculture and trade. This is in addition to the major lending activities by the other financial institutions like the microfinance and development banks.

“The new lending will drive up supply and exert downward pressure on domestic prices. It should also drive down lending rates at the retail end of the financial sector if it is sustained.”

Deputy Governor, Financial System Stability, CBN, Aishah Ahmad said, “Financial system stability emerged strong into 2020 as data provided by Bank staff indicated sustained improvement in soundness indicators in 2019, even as credit to the private sector continued to grow.

“Capital adequacy, liquidity and other prudential ratios remain within desired levels, whilst the NPLs ratio in particular, reduced further to 6.1 percent as at end December 2019, from 6.6 per cent at end-October 2019. The key challenge for the Bank will be to sustain this positive industry risk profile, notwithstanding continued growth in credit driven by the LDR policy.”

African Development Bank, a member of the MPC,  Robert Asogwa, said, “On a positive side, recent bank stability data reflects the general strengthening of banking system and a more supportive financial market.

“The decline of non-performing loans from 9.4 percent in August 2019 to 6.6 per cent in October 2019 and further to 6.1 per cent in December 2019 and the improvements in the both profitability indicators (ROE and ROA) are indications of an increasingly robust banking system and the build-up of a more resilient financial system.

“Also, the growth in total banking assets after the last MPC meeting, largely driven by growth in new credit suggests a positive response to the CBN’s loan to deposit ratio (LDR) guideline for deposit money banks even though the effectiveness of the new credit in stimulating growth are yet to be fully ascertained.”

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