Financial Analyst Mr. Ayokunle Olubunmi has cautioned that the current economic slowdown may result in a surge in loan defaults, potentially impacting banks’ earnings in 2024.
Olubunmi, who is the Head, of Financial Institutions Ratings at Agusto and Co, disclosed this at a forum themed, ‘2024 Economic Review/Outlook: “Impacts of Reforms on Banks’ organised by the Finance Correspondents Association of Nigeria (FICAN) in Lagos.
He also highlighted the looming threat of competition from non-bank entities in the realm of digital payments, signaling a need for banks to brace themselves for intensified challenges in the market.
Factors that will influence Banking Sector’s performance in 2024
Olubunmi noted that several factors including policy changes, economic conditions, and technological advancements will influence the Banking Sector’s performance in 2024.
According to him, predicting the exact outcome is difficult due to the dynamic interplay of these elements.
He noted that those who would proactively address the challenges and capitalize on the opportunities presented by these factors would likely emerge stronger and more successful.
This, he said, requires flexibility, innovation, and a clear understanding of the shifting landscape.
He outlined some of the themes that could impact the Nigerian banking sector in 2024 to be a more accommodating Central Bank, hawkish monetary policy, reform of the foreign exchange market, lower FX gains, and muted International Trade, among others.
Banks’ capital base
He also said that expanding Nigerian banks abroad could diversify risk but face new challenges.
He also noted that strengthening banks’ capital base could improve stability and lending capacity.
Olubunmi said that consolidation could create larger, more efficient banks but potentially reduce competition adding that issuing new licenses could increase competition and innovation, but potentially fragment the market.
He also said that a shake-up in the merchant banking segment could create opportunities for some banks and challenges for others.
He said that reform of the cash reserve requirement when modified could affect banks’ liquidity and profitability.
He also said that enforcing loan-to-deposit ratio compliance could drive credit expansion but raise concerns about credit quality.
On the Basel III transition, the analyst said that implementing stricter capital adequacy rules could improve financial stability but raise compliance costs.
