By Elizabeth Adegbesan

The Central Bank of Nigeria, CBN, may begin to soft-pedal on the pace of increases in the Monetary Policy Rate, MPR, as its Monetary Policy Committee, MPC, members raise concerns over vulnerabilities in the banking system.

This was part of the views expressed by in the July 2023 MPC meeting communique which members’ statements were released yesterday

In his views, Adamu Edward, Deputy Governor, Corporate Services Directorate of CBN said: “It is comforting that the banking system continues to be resilient.

“However, it may be too early to judge the impact of recent developments in the industry financial soundness indicators (FSIs). Amongst others, preserving the stability of the system continues to be a key priority on its own, and for effective transmission of monetary policy impulses.

“I see the recent wave of banking system troubles in the United States and Europe as an important learning point–that we could never take for granted the stability of the domestic banking system.

“Already there are warnings coming from some of the indicators like the capital adequacy ratio (CAR) which, though still within the regulatory threshold, has gravitated slowly to 11.23 per cent from 14.11 per cent a year ago. Much as the situation is not yet alarming, ignoring it could prove sub-optimal in the medium to long term.

“Slowing the pace of upward adjustments in interest rate clouds cushion any underlying vulnerability in the banking system.”

On his part, Prof. Adenikinju Adesola, a member said: “Operating cost to total operating income declined from 70.7 percent to 62.1 percent between May and June2023.

“As I reiterated in the last Personal Statement, the high operating cost environment of the banking sector should be concerning and needs to be addressed. “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 Kenya is 45.2% and Ghana 46.1%.

“The Bank Management should use the full range of the instruments available to it to address the liquidity surfeit including the Open Market Operations, and other indirect measures that offer appropriate returns to money market instruments and mop up excess liquidity, as well as attract foreign portfolio investment that would increase liquidity in the FX market.

“Private companies should also be incentivized to issue commercial papers to provide alternative investment instruments to investors.”

Deputy Governor, Financial System Stability Directorate of the CBN, Mrs. Aishah Ahmad, said: “The Banking system retains its resilience and capacity to support the economy through the headwinds. However, emerging vulnerabilities must be managed.

“Credit to the economy continued to grow while non-performing loans and other prudential ratios are within regulatory bands, nonetheless, the Bank must watch for vulnerabilities due to removal of subsidies and other macroeconomic shocks.