Nigerian Banks Urged to Reduce Operating Costs, Citing Higher Expenses Compared to Other Countries – MPC member

Adeola Adenikinju, a member of the Monetary Policy Committee (MPC), has highlighted the need for Nigerian banks to reduce their operating costs, which he claims are higher than those in other countries. This statement was made during the recent MPC meeting, as reported by the Central Bank of Nigeria.

Adenikinju’s report revealed a decline in interest margins to total operating income from 58.1% in March 2023 to 50.5% in April 2023. However, the operating cost to operating income ratio only marginally decreased from 70.6% to 70.5% during the same period.

Addressing the high operating cost environment of the banking sector, Adenikinju compared the ratios with other countries, stating, “In other climes, the ratio is 23.5% in Turkey, 50.6% in Brazil, 41.0% in Malaysia, 62.0% in South Africa, 43.2% in Angola, 35.2% in Egypt, 45.2% in Kenya, and 46.1% in Ghana.”

He further noted that the banking system stability review presented to the MPC members on financial soundness indicators indicated a positive outlook. The report highlighted the strength, soundness, and resilience of the banking system, with the capital adequacy ratio standing at 12.8% in April 2023, within the prudential requirement range of 10% to 15%.

Adenikinju also mentioned that the non-performing loans ratio decreased from 4.5% in March 2023 to 4.4% in April 2023, while the liquidity ratio rose to 45.3% in April 2023 compared to 43.8% in March 2023, surpassing the minimum prudential requirement of 30%.

During the period from March 2023 to April 2023, the return on equity (ROE) increased from 21.6% to 22.6%, and the return on assets (ROA) rose from 1.6% to 1.7%. Adenikinju also highlighted growth in banking size, including assets, deposits, and credits.

He stated, “Total assets of the banking industry grew by N16.65tn or 25.88% between April 2022 and 2023,” while industry credit increased by N4.54tn or 17.40% between the end of April 2022 and end of April 2023. Additionally, total industry deposits witnessed an increase of N8.84tn or 21.4% during the same period.

Adenikinju concluded by mentioning that stress tests conducted on the industry indicated its ability to withstand major risks and vulnerabilities in the system.