MPC Member Raises Concern Over High Operating Cost Of Nigerian Banks

Monetary Policy Committee (MPC) member, Adeola Adenikinju, noted that Nigerian banks operating cost is much higher compared to other countries, adding that they should be reduced.

Adenikinju said this during the MPC meeting, revealing that the interest margins to total operating income declined from 58.1 percent in March 2023 to 50.5 percent in April 2023, Punch reported on Wednesday.

He noted that the operating cost of the banks has marginally declined from 70.6 percent to 70.5 percent between March and April 2023.

"The high operating cost environment of the banking sector should be addressed," he said. "In other climes, the ratio is 23.5 percent in Turkey, 50.6 percent in Brazil, 41.0 percent in Malaysia, 62.0 percent in South Africa, 43.2 percent in Angola, 35.2 percent in Egypt, Kenya is 45.2 percent, and Ghana, 46.1 percent."

Adenikinju pointed out that the report presented by the Central Bank of Nigeria (CBN) last week, showed that the banks are financially sound, strong, and resilient.

"Non-performing loans ratio declined from 4.5 percent in March 2023 to 4.4 percent in April 2023," he noted. "Liquidity ratio rose to 45.3 percent in April 2023, from 43.8 percent in March 2023."

However, Adenikinju reassured that the banking sector is strong enough to withstand major risks and vulnerabilities. Although he stressed on reducing the operating costs as it will increase the profitability and the sector will be able to sustain itself in the global market in the long run.

Last month, CBN lifted the cash deposit limit into domiciliary accounts and disclosed that the withdrawal limit is $10,000 daily. This shows the condition of the banks is improving, compared to last year when the country was going through a cash crisis following a new currency redesign policy.

The demonetization in the country mopped up over 70% of cash in Nigeria, causing an estimated loss of N20 trillion. Furthermore, Nigeria's new president, Bola Ahmed Tinubu announced subsidy removal during his inauguration, held on May 29.

This announcement increased the cost of petrol from N195 per litre to N600 per litre, which led to transport companies like Uber, increasing their fares to ensure that drivers can cover their fuel costs and deal with inflation.

Moreover, the Tinubu-led government confirmed that a 7.5% VAT (Value Added Tax) on diesel has been implemented. Despite all the challenges, President Tinubu said earlier this week that Nigeria has no reason to fail, noting that the country is on the "right track so far."