2022! What a year it's been. Following the covid-19 vaccine rollout and a gradual oil price rebound in late 2021, the expectation was for 2022 to kickstart global economic growth. But, along came the Russia-Ukraine war, which led to high inflation and higher interest rates as central banks worldwide aimed to curtail rapid price increases.
Such shocks make economic sectors vulnerable, especially the banking industry, which provides an essential function of mobilising funds from those that need to stash their money away (savers) to those that don’t have enough to execute their plans (borrowers).
Central banks worldwide have responded to rising global inflation by hiking benchmark interest rates. Similarly, the Central Bank of Nigeria (CBN) has hiked the monetary policy rate (MPR) three times this year to 15.5% in September.
Banks, at the heart of the economy, are vulnerable to changes in interest rates due to their core function of collecting deposits from savers and disbursing loans to borrowers according to interest rates.
Bank profits in H1’22 were supported by higher interest rates, impressive loan book growth and customer deposits.
In my Stears debut article, I examined the banking industry based on their Q1 2022 financial reports to see if the banking industry at that time could withstand shocks from another global recession. I highlighted the impact of high inflation, rising interest rates and exchange rate devaluation on banks’ financials, concluding that despite these downside risks, the Nigerian banking sector has what it takes to survive another recession. Still, after analysing different banking sector metrics such as return on equity (the return shareholders get for investing), Non-performing loans (bad loans), etc., it was clear that banks were in difficult times. The verdict was that banking management must be intentional about being cost-effective to cushion the impact of shocks.
However, more events in reaction to the global economic climate have unfolded after April and affected the financial