Financial Sector Overview

The financial sector of Nigeria is diversified with numerous institutions across the countries. It consisted of 26 commercial banks, 106 finance companies, 6 development finance institutions, 5 discount houses, 104 finance companies, 7 holding companies, 6 merchant banks, 120 micro finances banks, 4 non-interest banks, 32 primary mortgage banks, 4 payments services banks, 17 mobile money operators and 67 insurances and reinsurances companies. Nigeria continue to enhance the integrity of their financial system through strengthened AML/CFT1 awareness programs and surveillance activities. The country was placed on the FATF grey list in February 2023.

Banking Sector

The Nigeria banking sector comprises 26 banks. The Central Bank of Nigeria released its regulatory framework for open banking in Nigeria in February 2021. The open banking framework adopts a supportive approach to open banking and establishes principles for data sharing across the banking and financial services ecosystem through the development of a common banking industry Application Program Interface (API) standard. The banking penetration, as measured by the ratio of deposit money banks’ assets to GDP, increased between 2019 and 2021 to reach 16.4%. However, the banking asset concentration for the three and five largest banks is still high and stood respectively at more than 50% and 70% in 2021. 

Access to bank credit remains constrained in Nigeria. As a proportion of the GDP, domestic credit to the private sector provided by banks remains well below the Sub-Saharan average of 26.4% in 2022. However, credit to the private sector increased over 2019-2020, mainly driven by the slow pace of economic activity, resulting from the COVID-19 pandemic. Notwithstanding the impact of the drastic COVID-19 measures such as lockdowns, bank deposits (time and saving deposits), as a share of DGP, registered an increase over 2019/21. This could partly be attributed to buoyant resource mobilization strategies through attractive deposit interest rates.

Financial Soundness of the Banking Sector - Despite the challenging macro-environment, the banks continued to strengthen the safety and soundness of the sector, backed by supportive measures initiated by the Central Bank to ensure liquidity in the financial sector and credit flows to the economy. The banking sector remained well capitalized, liquid, and profitable with strong buffers that helped withstand the adverse shocks emanating from the health crisis. The implementation of a suite of Basel II/III instruments is underway. The Central Bank of Nigeria (CBN) is applying instruments such as liquidity coverage ratio, capital conservation buffer and leverage ratio. The Basel framework, which constitute the basic structure for banks’ regulations, provides for liquidity buffers and built-in capital, and for banks to draw on during times of financial stress. Asset quality, as measured by the ratio of non-performing loan (NPLs) recently improved. Owing to banks’ conservative lending policies, regulatory forbearance and the central bank’s creditintervention programs, NPL ratios remained broadly unchanged in Nigeria at 6% between 2019 and 2020, slightly above the prudential threshold of 5% and fell to 4% in 2022. 

Overall, the banking sector handled adequate capital and liquid assets above the recommended. The industry’s Capital Adequacy Ratio (CAR) computed through the regulatory capital to riskweighted assets (RWA) rose to 13.8% in 2022 and was much higher on average than the minimum regulatory threshold (15% for banks with international subsidiaries and 10.0% for banks without), suggesting that banks continued to have capital buffers to absorb potential losses. The liquidity ratio decelerated over the period 2019-2022 from 40.9% to 37.4% but remained above the 30% benchmark. Banking sector profitability, as measured by the average Return On Assets (ROA) and the Return On Equity (ROE), declined over 2019/2021, partly due to the effects of the health crisis. In 2022 ROA remained at 1.4% while ROE increased to 17.2%.

Financial Inclusion

Over the last decade, financial inclusion has recorded noticeable progress in Nigeria. Financial inclusion rose from 29.7% in 2011 to 2014 to 45.3% in 2021 but it is still below the sub-Saharan average of 55.1%. Reasons for low rates of financial inclusion include lack of resources or steady income, the cost of financial services and difficulties in obtaining required documentation (such as identification), lack of trust in financial service providers, and lack of financial literacy with greater leaning on informal networks. Financial inclusion in Nigeria seems also to be more bank-oriented as 45.1% of the adult population owned a financial institution account in 2021, a rate well above that of the SSA average (39.7% in 2021). Nigeria is underperforming in terms of mobile account ownership, despite the availability of electronic tools. Financial inclusion is also marked by a certain gender gap. Only 35% of women respectively have an account. This gender gap can partly be explained by women’s lower levels of income, education, and lack of trust in the providers of financial services. The Nigerian authorities have been fostering women’s access to finance through various initiatives including the Denarau Accord for Women’s Financial Inclusion in 2016 and a framework launched in 2020, aiming at advancing women’s financial inclusion to close the gender gap. In 2021, the country also launched a digital financial inclusion drive for account opening by women. 

Digital Finance - The restrictions associated with the pandemic have provided additional impetus to promote efficient and inclusive digital financial services, led by the dominance of mobile money activities as the main means of payments. However, the economic contribution of mobile money payments remains relatively in Nigeria was at only 16.1% of GDP in 2022 respectively. In October 2021, there was the introduction of eNaira, a central bank digital currency (CBDC), which offers low-cost and phone-enabled financial transactions outside established channels. However, despite these potential benefits, cybersecurity risks are associated with the eNaira. Moreover, Nigeria’s Securities and Exchange Commission (SEC) launched FinPort, a fintech and innovation portal, which aims to assist fintech businesses and help them understand the regulatory requirements for the Nigerian capital market. The SEC will also be rolling out a regulatory incubator for fintech seeking to conduct capital market activities. More recently, the Central Bank of Nigeria launched a regulatory sandbox8 in 2022, which reflects their commitment to creating an inclusive regulatory environment for the growth of Fintechs and supporting innovation.
 

The country is also improving the QR (Quick Response) codes related to their Interbank Payment and Settlement Systems in a view to providing enhanced payment experience. The Nigeria Inter-Bank Settlement System (NIBSS) launched the New Quick Response (NQR) payment solution, which is an innovative payment platform used in the merging of fragmented QR systems operated by all financial service providers. Finally, an initiative at the regional level consisted of establishing the ECOWAS PaymentSettlement System (EPSS), which aimed at promoting the integration of payment systems with the ultimate goal of establishing a regional payments system.

SME Financing - Micro, Small, and Medium Enterprises (MSMEs) are critical to economic development as they are endowed with great potential for employment generation and improvement of local technology. 49% of SMEs in Nigeria are financially constrained. The total amount of current finance supply to MSMEs in Nigeria, which is estimated at USD 101.3 Million remains below the MSMEs’ potential demand of USD 158.2 billion, leaving a finance gap of USD 158.1 billion. Relative to the size of the economy, MSME financial gaps for these countries represent 33% of GDP. Factors partly explaining banks’ risk aversion to MSMEs include, among others, lack of credit history, poor financial records, and lack of credible business plans. In addition, profits yielded by many small enterprises remain relatively low, making them unable to repay loans at the current market rates and tenors. They also have some difficulties in securing their working capital given the delayed payment by private and public sector buyers. Moreover, MSMEs usually face difficulties in affording collaterals, such as real estate assets, required by banks. The absence of tools to mitigate credit risk (such as risk-sharing facilities or movable collateral frameworks or) also reduces financial institutions’ appetite.

Insurance

The insurance landscape shows a low level of development, as evidenced by the level of assets relative to the GDP, which did not exceed 1.1% from 2015 to 2019. However, the industry’s total assets stood at N 3336.4 billion (USD 2.43 billion) in the first quarter of 2024. The gross income of both non-life and life insurance stood at N 255.1 million (USD 185, 650) in the first quarter of 2024: a growth of 51.1% compared to last year at the same period. Nigeria stands out with 67 insurance and reinsurance companies, including 4 Takaful5 companies. 

The Nigerian insurance market saw a 27% increase in premium generation in 2023 compared to the previous year (2022) in which the sector saw a 25% market increase. The industry reached a new high of a N1,003.2 trillion (USD 730.08 million) in gross premium written in 2024, continuing its pattern of growth. The insurance gross written premium stood at N 1003.2 billion (USD 730.08 million) in the first quarter of 2024. Many challenges hinder the development of the sector in Nigeria. One of the biggest challenges remains the low level of insurance penetration. The sector contribution to the nominal GDP was only 4.01% of GDP in the second quarter of 2023. In Nigeria, the high number of compulsory insurance6 has not significantly affected the performance of the sector. However, the high incidence of fake motor insurance markets has led to measures to stop this threat. These measures include the introduction of the Nigerian Insurance Database (NID), which is an information technology platform that enables buyers of motor insurance coverage to verify the authenticity of their policy from their mobile phones.

The Capital Market

In 2022, the market capitalization in Nigeria stood at 19.3% which is very low compared to that of countries like Morocco (41% of GDP) and South Africa (289.1% of GDP). The nominal value of the market capitalization in Nigeria amounted to USD 64191 million in 2023, a 42% contraction from 2022 due to the high inflation. Nigeria stock market have a low turnover ratio, suggesting a low level of liquidity, due to little buying and selling. The turnover ratio, as a share of the market capitalization stays below 10% since 2017, against nearly 25.9% for South Africa in 2023. The market breadth, which can be proxied by the number of listed companies, shows that a certain availability of stock for investors to have more diversified portfolios. Nigeria registered 172 listed companies in 2023, which remains low compared to South Africa (284 in 2023). Moreover, the absence of listed foreign companies highlights a limited cross-border or inbound listings.

Capital-raising activities increased significantly in the Nigerian fixed income market, as the bond market capitalization rose by 35.4% to USD 7 861.7 million in 2021. Issuance of domestic debt instruments to complement revenue inflows supported the fiscal operations of the Nigerian government. The stock of domestic debt outstanding at the end of June 2021 stood at NGN 17 631.8 billion, an increase of 14.1% compared to the end of June 2020. The debt stock is mainly composed of federal government bonds and Nigeria treasury bills, which account for 75.1% and 17% respectively. Nigeria, has issued Eurobonds, reflecting the desire to turn to new sources of public and resource mobilization. Between 2007 and 2021, Eurobond issuance has raised USD 31 193 million, of which Nigeria accounted for 50.2%.

Social Security

The Federal Government of Nigeria enacted the Pension Reform Act in 2004 (PRA 2004) which introduced the contributory pension scheme and made it mandatory for employers and employees in both private and public sectors. A new Act, promulgated in 2014, and signed into law, makes it mandatory for state and local governments to implement contributory pensions for their employees. The membership of the various pension schemes increased from 9,271,665 in 2020 to 9,586,291 in 2021, representing a growth rate of 3.39%. This growth is attributed to an increase in the level of compliance by the public and private sectors. 

Pensions Regulatory Authorities responded positively to the uncertainties that appeared since the onset of the pandemic through policies, directives, and incentives in the pensions industry to ensure business continuity. As a result, pension industries recorded asset growth, suggesting that decumulations recorded by some private pension funds and other disruptions created by COVID-19 had minimal impact on the growth of Pension funds. In Nigeria, the net assets value of pension funds recorded a growth rate of 12.98% from NGN 10.22 trillion (USD 28.3 billion) in 2019 to NGN 12.31 trillion (USD 32.2 billion) as of 31 December 2020, mainly attributed to contributions, income earned on fixed and variable income securities, and price appreciation of equities and bonds. Government securities dominate pension fund allocation in Nigeria. 66.64% of pension fund assets were invested in the Federal Government of Nigeria (FGN) securities in 2020, a decrease from 71.9% reported in 2019. Allocations to Money Market instruments, Ordinary shares, and Corporate Debt Securities accounted for 13.97%, 7.72%, and 6.13% of pension industry allocations respectively.

Contact Details Information of Banks operating in Nigeria - 2018