Nigeria’s banking sector remains resilient due to ample pre-crisis buffers – IMF says

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Nigeria’s banking sector has been resilient thanks to ample pre-crisis buffers.

The systemwide NPL ratio has improved, and profitability has been resilient, resulting in capital buffers above the regulatory minimum.

However, stress tests conducted by the authorities show that a severe shock requiring loan reclassification could erode the system’s buffers and there are risks that a part of the restructured loans, which represent less than a quarter of the overall loan portfolio, may eventually become delinquent.

Tighter market liquidity due to CRR debits and restricted access to the CBN discount window may raise bank funding costs going forward and possibly restrict credit growth at individual banks.

While Financial inclusion continued to improve despite the pandemic but remains considerably below Nigeria’s ambitious inclusion targets.

The share of the financially excluded population remains large overall, particularly in rural areas and among women and youth.

The mission recommended prioritizing provision of financial access points in remote areas and leverage the new technologies to close the inclusion gap more quickly.

The launching of eNaira bodes strong promises and, over time, could significantly increase financial inclusion and delivery of social assistance if coverage is extended to those with a mobile phone.