THE FINANCIAL SERVICES INDUSTRY IN NIGERIA

Volatility in the foreign exchange market dominated proceedings for banks in 2016. There were hopes that the attempted liberalisation of the foreign exchange market in the middle of the year would improve foreign exchange flow but that did not materialise. The supply side remains challenged.

In addition, the restriction on the importation of the 41 goods and services that had been in place since 2015 was maintained.

The CBN sought to clamp down further on bureau de change operators that it believed were attempting to manipulate the market. As foreign exchange supply declined, banks restricted use of dollar cards overseas.

Despite the tightening up of the market, banks were still able to report very strong foreign exchange-related income because of the positive gains from their balance sheet positions as the naira weakened.

Besides foreign exchange, banks adopted more of a risk-averse position, preferring to restrict lending to only top tier customers and strengthen their risk management and recovery processes as asset quality issues began to emerge. With loans falling out of favour, Federal Government securities were increasingly favoured, especially with yields in the teens for most of the year on both treasury bills and bonds.

Unlike prior to 2016 when MPC decisions varied and had a marked impact on banks, with minimal changes on the cash reserve ratios for both public and private sector deposits and the liquidity ratio, and the greatest impact of the implementation of the treasury single account was felt in 2015.

With the MPC seemingly having run out of tools to stimulate growth, attention is shifting to the fiscal. The expansionary budget is a positive in this regard. Banks will be hoping that execution of reforms being undertaken and capital programmes are carried out effectively before the sector can participate in any meaningful GDP recovery in 2017.

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