Market News

The year 2024 has been a significant one for both the financial industry and the Nigerian economy. From the push for recapitalisation to the continuous depreciation of the naira and the persistent rise in the cost of goods and services, the country has experienced a series of pivotal developments. A key positive development for the financial sector was the resolution of the foreign exchange backlog, which had almost stalled foreign exchange inflows into the country as investors grew concerned about the ability to repatriate their funds.

The Olayemi Cardoso led Central Bank of Nigeria had earlier in the year announced that it had cleared over $7 billion backlog.

The initial response to this was an appreciation of the naira as the local currency which began the year at around N1,300 to the dollar at the official end of the market appreciated to N1,075 in the course of the year. However, increased demand as well as activities of speculators had seen the value of the naira depreciate to N1,675, a level at which it still hovers as at December 2024.

As part of efforts at curbing speculation as well as eliminating price distortions in the foreign exchange market the Central Bank of Nigeria (CBN) had introduced the Electronic Foreign Exchange Matching System (EFEMS), for Foreign Exchange (FX) transactions in the Nigerian Foreign Exchange Market (NFEM).

As the value of the naira diminished against the dollar, leaving many companies to foreign exchange exposures in the country, the Central Bank of Nigeria (CBN) had issued a directive on foreign exchange exposures of banks amongst which is lending in the same currency it borrowed.

According to the apex bank, foreign currency exposures of banks through their Net Open Position (NOP) had created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks. Thus it issued the prudential requirements to ensure that these risks are well managed and avoid losses that could pose material systemic challenges.

The CBN had also barred international oil companies (IOCs) from repatriating 100 per cent of their foreign exchange proceeds at once, as only 50 per cent of forex proceeds can be repatriated at once. Previously, IOCs were allowed to immediately remit 100 per cent of their forex proceeds abroad, a practice known as “cash pooling.”

However, the CBN said the transfer of proceeds of crude oil exports by IOCs operating in Nigeria offshore to fund parent accounts of the IOCs, is impacting liquidity in the domestic foreign exchange market. For banks, their worth was tested as they all had to scurry to investors in an attempt to raise the much-needed capital. Having hinted on plans for recapitalisation of the banking industry at the end of 2023, the Central Bank of Nigeria had in March 2024 announced a new capital base.

Giving a one month deadline for submission of plans the CBN had required that commercial banks with international licenses shore up their capital base to N500 billion while their national and regional counterparts are required to have capital base of N200 billion and N50 billion respectively.

Similarly, the capital base of national non-interest banks were raised to N20 billion while that of regional non-interest was raised to N10 billion. Merchant banks capital base was also raised to N50 billion.

To meet up with the new capital base by the April 2026 deadline, banks had sprung to action, raising capital through public offers, rights issues and private placements. The first merger had come with the support of the CBN which gave its first bailout of N700 billion financial support towards the merger between Unity Bank Plc and Providus Bank Limited.

Meanwhile, on Monday, June 3, 2024, Nigerians were reminded that banks can collapse and close shops, after the CBN announced the revocation of the license of Heritage Bank Plc, the first commercial bank to have its operating license revoked in the country since 2006.

According to the apex bank, the revocation had become necessary due to the Heritage Bank’s breach of Section 12 (1) of BOFIA, 2020. “The Board and Management of the bank have not been able to improve the bank’s financial performance, a situation which constitutes a threat to financial stability. This follows a period during which the CBN engaged with the bank and prescribed various supervisory steps intended to stem the decline.”

Prior to this, the Nigeria Deposit Insurance Corporation (NDIC) had announced an increase in the maximum deposit insurance coverage or banks in the country which saw the coverage for depositors in deposit money banks, microfinance banks, primary mortgage banks, as well as payment system banks rise to N5 million, N2 million while the pass through coverage for mobile money operators was raised to N5 million.

The review saw the deposits coverage will provide full coverage for 98,98 per cent of DMB customers compared to the previous cover of 89.2 per cent; 99.27 per cent of MFB deposits as against the previous level of 98.76 per cent and 99.34 per cent of PMB deposits compared with the previous cover of 97.98 percent and 99.99 per cent coverage of PSB deposits.

Consequently, more than 85 per cent of the depositors of the defunct bank had been paid the coverage amount with those unpaid being those without Bank Verification Number, and those with lien on their accounts. Presently, the assets of the bank are up for sale to fully liquidate and pay the balances of the depositors as well as settle creditors of the bank.

The Unclaimed Balances Trust Fund (UBTF) Pool Account had also been introduced in the course of the year. The UBTF which is expected to commence from October 2025 will see balances of bank accounts that have remained dormant from 2015 transferred into the special account domiciled with the CBN. Bank customers had also been stirred by the CBN when it introduced the 0.5 per cent cybersecurity levy on every electronic transaction. Although the implementation had been halted, bank customers once again questioned the need to put their funds in traditional banks when many could not access their funds for weeks after major banks in the country decided to update their softwares almost at the same time.

Banks also had their challenges as they had to cope with the windfall tax on foreign exchange revaluation profits introduced by the Bola Ahmed Tinubu led government. Although many voices had risen against the tax, the government had been unshaken in its resolve to share in the windfall profits of banks. For the economy, the country had not fared better as parameters were mostly not friendly to the common man. Inflation, which measures the rate at which prices of goods and services rise, had gone from 28.92 per cent in December last year to 34.9 per cent in November.

Benchmark interest rate rose from 18.75 per cent to 27.5 per cent as the Monetary Policy Committee adopted a tightening stance in an effort to curb inflation in the country. GDP growth remained static after plummeting in the first quarter of the year, standing at 3.46 per cent in the third quarter of the year, same as what it was in the last quarter of 2023. Trade surplus shrank to N1.662 trillion in September 2024, from N1.176 trillion which it was in the corresponding month of 2023. One major milestone in the year is the tax reform bill which has become a controversial issue.

A look through the year 2024 would however not be complete without mentioning the loss suffered by the Nigerian banking industry. The industry lost one of its icons, Herbert Wigwe who died alongside his wife and son in February.