“Send your account number”—Nigerians’ favourite thing to hear. Banks have become so embedded into our society that sometimes we often forget their importance and crucial role. Most times, it’s when we can’t make transactions or access our funds we start raining curses on them, hoping that’ll make them act right.
The banking industry is the heart of any economy, and the services they provide are crucial in powering up other sectors and keeping an economy healthy. However, shocks from one or more sectors impact the banking industry too.
The 2008 financial crisis is an example of this symbiotic relationship. With a global recession threatening, we need to assess our banks' strength. The downside is that the recent global shocks fuelling rising inflation have adversely impacted Nigerian banks. Key ratios such as capital adequacy and cost to income are worsening.
The upside is the Nigerian banking industry has built buffers through strong regulations. The industry’s capital adequacy and liquidity ratios are still above prudential limits set by the Central Bank of Nigeria. However, some ‘big banks’ are already falling through the cracks of this limit, raising the alarm to be more intentional about being cost-effective to cushion the impact of shocks.
However, banks play a critical role in the broader economy too. Their most basic function, mobilising funds from those that need to stash their money away (savers) to those that don’t have enough to execute their plans (borrowers), sits at the heart of capitalist economies.
This is why we hear that the Central Bank of Nigeria (CBN) issues various reforms. Some include the banking sector consolidation in 2004, adopting IFRS 9 and Basel II&III accounting principles/standards etc.). All of these reforms were to ensure this crucial organ keeps on running smoothly; imagine all the veins and arteries in your body drying up all at once—Avada Kedavra!
So you can picture my face when I discovered that the oldest bank in Nigeria—First Bank of Nigeria Holdings (FBNH), is barely holding its head above water. Worse, this is happening just months after a two-year-old bank (Titan Trust) acquired Nigeria’s second oldest bank (Union Bank).
Does this signal that Nigerian banks are in trouble,