As the first quarter of 2024 unfolds, the Head of Financial Institutions Ratings at Agusto and Co, Ayokunle Olubunmi, has outlined the potential factors that will shape the performance of the Nigerian banking sector. Speaking at the Finance Correspondents of Nigeria (FICAN) bi-monthly forum, themed “2024 Economic Review/Outlook: Impacts of Reforms on Banks,” Olubunmi emphasized the intricate interplay of policy changes, economic conditions, and technological advancements in influencing banking performance.
While acknowledging the difficulty in predicting exact outcomes, Olubunmi stressed that proactive addressing of challenges and capitalizing on opportunities would position banks for strength and success. He emphasized the need for flexibility, innovation, and a clear understanding of the evolving landscape.
Several themes were highlighted as potential influencers on the Nigerian banking sector in 2024. These include expectations of a more accommodating Central Bank, a hawkish monetary policy, reforms in the foreign exchange market, lower foreign exchange gains, and muted international trade. Olubunmi suggested that expanding Nigerian banks abroad could diversify risk but might bring forth new challenges.
Strengthening banks’ capital base was noted as a key strategy to improve stability and lending capacity. However, Olubunmi pointed out that consolidation might create larger, more efficient banks but could reduce competition. On the other hand, issuing new licenses could increase competition and innovation but might potentially fragment the market.
The analyst also discussed the potential shake-up in the merchant banking segment, creating both opportunities and challenges for banks. The reform of the cash reserve requirement, when modified, could impact banks’ liquidity and profitability.
Addressing the Basel III transition, Olubunmi noted that stricter capital adequacy rules could enhance financial stability but raise compliance costs. Additionally, he highlighted the risk of macroeconomic downturn, suggesting that an economic slowdown could lead to increased loan defaults and impact banks’ earnings, with potential competition from non-bank players in digital payments.
The insights provided by Mr. Ayokunle Olubunmi offer a comprehensive view of the challenges and opportunities facing the banking sector, underscoring the need for adaptability and strategic foresight in navigating the dynamic economic landscape of 2024.
