How Nigerian banks can navigate major headwinds

Moody’s recent report highlighted that the majority of rated African banks exhibit strong liquidity profiles that could help them withstand significant deposit withdrawals. However, Nigerian banks are facing several challenges, including rising sovereign credit risk, high inflation, and foreign exchange shortages. To delve deeper into how Nigerian banks can navigate these headwinds, Wonuola Akanbi, Head of Energy and Infrastructure Sales, Global Markets at Stanbic IBTC Bank, joined CNBC Africa for an insightful discussion. Akanbi emphasized the robustness of Nigerian banks, highlighting their strong capital adequacy ratio and cash reserve ratio, which currently stands at 32.5%. This positions banks well to access liquidity from the central bank in case of a run, with a liquidity ratio of around 30% allowing for quick liquidation of assets to fund operations. The central bank also serves as a lender of last resort, ready to intervene in times of crisis. Despite challenges such as the recent cash crunch, Nigerian banks maintain a diverse and resilient deposit base, with approximately 70% of deposits coming from customers. Akanbi underscored the importance of monitoring the quality of assets in light of the economic landscape and potential impacts on businesses that have secured loans from banks. Regarding the impact of investment losses, Akanbi expressed confidence in the banks' capital adequacy to absorb such losses, aided by prudent guidelines and ongoing monitoring by the central bank. He noted that some banks have already taken impairments on investments, demonstrating readiness to cover losses. Additionally, high profitability levels, even in a high-interest rate environment, provide a buffer against investment shocks. Looking ahead, Akanbi acknowledged the risks posed by foreign currency borrowing costs and global economic uncertainties, emphasizing the need for banks to pass on these higher costs to customers while considering the market's response. Stress testing is integral to assessing banks' resilience, with regular checks and scenario-based testing helping them prepare for potential crises. As Nigeria prepares for a new government in the second half of the year, key factors such as debt sustainability, interest rate movements, and inflation control will shape the banking sector outlook. The ongoing foreign exchange shortages pose another challenge, with market convergence and rate adjustments on the horizon. Akanbi's insights shed light on the proactive measures Nigerian banks are taking to navigate turbulent times and maintain stability in the face of multifaceted challenges.