Naira Scarcity: Earnings Dilutive for Nigerian Banks – Analysts

Naira scarcity in Africa’s largest economy by size of gross domestic product (GDP) will impact Nigerian deposit money banks’ earnings target negatively in the first quarter of 2023, a slew of analysts said.

In what has been projected to be a great year, the unintended consequences of poor implementation of local currency redesign have brought more pain for individuals and corporates alike. Lower deposit is expected to impact lending and then interest income.

While the process of swapping the old naira notes with the new ones signals potential weakness at the planning stage, the Central Bank of Nigeria (CBN) failed out rightly to correct anomalies just in time.

Depositors have been unable to make withdrawals in a cash-driven economy with large numbers of unbanked and illiterates.

This triggered reactions and local banks became targets for failing implementation of the naira as first contact with customers who had laboured had to save little.

Unfortunately, local banks opened the year with higher earnings expectations. Analysts are projecting that local lenders will feel the CBN failed mission in their earnings report for Q1, 2023.

Deposit from the street provides cheap funding for Nigerian banks rather than large ticket Inflows from corporates, analysts said.

With the development, banks with deep footprints in the retail market will be impacted more following the recent dirty experience with their customers who were angst for their inability to withdraw their money for daily use.

Nigerians deal with cash on a daily basis, the transaction pattern the CBN failed to address before it launched an overnight cashless economic policy without electronic infrastructure backup.

Daily Global News reported that the enaira push has been disappointing largely despite the humongous amount spent on the project. Financial education is at its bay in Africa’s largest economy.

For days, many Nigerian banks were forced to close down operations across cities due to mass attacks triggered by regulator lack of preparedness.

“Few banks will meet first quarter guidance due to the naira swap disruption which remains unresolved yet as Q1 is coming to an end in few days”, according to analysts who preferred not to be mentioned.

Deposit Money Banks staff members told MarketForces Africa that many operators may record loss given the level of damaged property they have to fix. Others are of the view that insurance will bear the brunt. A call to some insurance operator to confirm these claims proved unsuccessful at the press time.

Zenith bank, a local lender, that recently transitioned into retail banking was one of the most attacked in the saga. FirstBank of Nigeria Limited felt customers disgruntled at the same time, forcing the oldest lender to scale back operations.

Access Bank was not left alone in the battle against the street. The bank branches were attacked for failing to provide naira. GTBank was not spared either following incessant complaints that had preceded the naira swap issues by its Nigerian customers.

The orange branded financial services have been recording weak earnings performance and the recent attack may hit hard on Q1 profitability.

Pan Africa lender, UBA, faced a similar experience in the hands of customers across the cities. However, it appears the level of attack against the bank was minimal.

Ecobank recorded lower attacks on its facility compared to others. The Pan Africa lender has recently achieved success in balance sheet cleaning. Naira Scarcity: Earnings Dilutive for Nigerian Banks – Analysts.