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The Central of Nigeria (CBN) has presented a new report on the Nigerian banking sector that highlights a dismal performance amid negative output growth, inflationary pressures, low oil prices and depleted fiscal buffers.

The report was presented at the Bankers’ Committee meeting in Abuja last week by Dr. Sarah Alade, Deputy Governor (Economic Policy) of the Central Bank of Nigeria. The CBN report shows that total deposits in the Deposit Money Banks dropped by 5.6 per cent or N1.029 trillion from N18.54 trillion recorded in April 2015 to N17.51 trillion in April 2016.

Dr. Alade attributed the decrease in bank deposits to the implementation of the Treasury Single Account (TSA) policy of the Federal Government which pools all government revenue in one single account for the effective and transparent management of public finance. This led to the aggravation of the liquidity conditions in the banking sector.

According to the report, the financial intermediation role of the banks has also being impaired over the last one year as gross credit to the private and public sector declined by N41 billion or 0.3 per cent from N13.4 trillion in April last year to N13.36 trillion in April 2016.

Total assets of the banking sector also decreased by N154 billion from N27.58 trillion to N27.43 trillion in the one-year period under review.

The CBN reported that Non-Performing Loans (NPL) ratio for the banking sector has increased to 10.1 per cent, way above the prudential limit of 5 per cent.

“The NPLs ratio stood at 10.1 per cent as of April 2016, which was well above the prudential limit of five per cent. The sustained low price of crude oil, supply constraints at the forex market as well as other macroeconomic conditions impacted negatively on the quality of bank loans.”

Dr. Alade said these developments ultimately led to a decline in total earnings as well as income from interest and non-interest investments by Nigerian banks.

The unaudited profit before tax of the banks decreased by 10.8 per cent to N198 billion as of April 30, 2016, from N222 billion recorded in April last year.

“The return on assets and return on equity were 2.17 and 16.17 per cent in February 2016 compared with 2.42 per cent and 19.39 per cent in the corresponding period of 2015," the CBN report stated. “The decline was driven largely by the decrease in both interest and non-interest income, which declined by six per cent or N50 billion and 54 per cent or N259 billion, respectively.”

Some analysts say the dismal performance of the banks is what has led to the mass sacking of bank workers, whereby over 1,400 workers have been recently sacked.

Nevertheless, the report reassures of the soundness of the Nigerian banking sector. Although the Capital Adequacy Ratio (CAR) of the banking sector has declined from 17 per cent to 16.5 per cent, it is still above the prudential minimum of 10 per cent.

The CBN said the sector's liquidity ratio is also above the minimum requirement of 30 per cent.

“As at April 2016, the industry liquidity ratio stood at 46.3 per cent compared with 39.78 per cent as at April 2015,” the CBN report said. “The trend of industry liquidity ratio shows that the industry operated far above the minimum requirement of 30 per cent.”

With declining external reserves, the central bank also said the economy is faced with the challenges in the foreign exchange market, capital outflows and growing public debt due to decreasing government revenue from oil exports.

The Bankers Committee, on its part, has presented proposal to the CBN to limit the over-the-counter cash withdrawals by bank customers to N10,000 to deepen the cashless policy of the CBN.