In 2024, the banking sector underwent various policy changes driven by three key factors: the ongoing inflation surge, foreign exchange market reforms, and a recapitalization initiative. The inflation rate escalated, exacerbated by rising petrol prices and the continued depreciation of the naira.
In 2024, the naira experienced a depreciation of 34% and 56%, falling to N1,662 and N1,540 per dollar in the parallel and official markets, respectively, from N1,240 and N988.46 per dollar at the start of the year.
The naira’s depreciation and the removal of fuel subsidies resulted in a 76.4% surge in the national average price of petrol, reaching N1,184.83 per liter. This increase intensified the already rising prices of goods and services that began in 2022. Consequently, the national average Cost of a Healthy Diet (CoHD) surged by 74% to N1,371 in October, up from N786 in December 2023, according to the National Bureau of Statistics. This led to a rise in the headline inflation rate to 33.88% in October, compared to 28.92% in December 2023.
In response to the escalating inflation, the Central Bank of Nigeria (CBN) took measures to curb the money supply. It raised the benchmark interest rate eight times, totaling an increase of 875 basis points to 27.5% in November from 18.75% at the start of the year. The CBN also raised the Cash Reserve Ratio (CRR) for commercial and merchant banks to 50% and 16%, respectively, from 32.5% and 10%. Additionally, it conducted liquidity management through regular Open Market Operations by selling treasury bills.
The Central Bank of Nigeria (CBN) sold N12.83 trillion in Open Market Operations (OMO) treasury bills from January to December 5, 2024, a significant increase from N716.7 billion in all of 2023. This aggressive selling led to a severe liquidity shortage in the interbank money market, prompting banks to frequently borrow from the CBN to meet short-term cash requirements. As a result, the interbank interest rate rose to 31.5% on December 13, 2024, up from 15.38% on December 29, 2023.
In conjunction with the Monetary Policy Rate (MPR) hikes, the interest rate on 365-day treasury bills increased by 22.9% in December compared to 12.24% at the end of the previous year. While these high interest rates faced criticism from manufacturers and other sectors, they positively impacted investors by improving returns on fixed-income investments such as treasury bills, commercial papers, and bonds, in addition to enhancing banks’ interest income and profitability. For instance, the interest income of the top 11 commercial banks surged by 141.75% to N6.89 trillion in the first half of 2024, compared to N2.8 trillion in the same period in 2023.
Additionally, 2024 saw the CBN implement multiple policy measures aimed at increasing transparency and boosting dollar supply in the foreign exchange market. Within one week, the CBN issued five circulars that reshaped the forex market dynamics, resulting in a brief appreciation of the naira.
On January 29, the Central Bank of Nigeria (CBN) issued a circular titled “Financial Markets Price Transparency” to address the issue of misleading information in the official forex market. The circular highlighted investigations revealing under-reporting of transaction rates and other unethical practices that distort market prices, stating that such manipulation would face strict penalties. Following this announcement, the naira sharply depreciated to N1,348.63 per dollar in the official market, reducing the gap between official and parallel market rates to N76.37 from N508.1.
On January 31, the CBN restricted banks from holding excessive foreign currency by ordering them to sell any surplus dollar holdings within 24 hours. The CBN expressed concern over banks’ growing foreign currency exposures and established a new limit on banks’ Net Open Position (NOP) to 20% of shareholders’ funds, requiring compliance by February 1, 2024.
Additionally, the CBN issued a circular on the same day aimed at boosting Diaspora remittances by removing the previous exchange rate cap for International Money Transfer Operators (IMTOs). IMTOs can now quote exchange rates based on prevailing market rates, which is expected to enhance the official remittance channel. The CBN also revised guidelines for IMTO operations, setting a minimum operating capital requirement of $1 million, increasing the licensing application fee to N10 million, and prohibiting banks and fintechs from providing IMTO services. Eligible IMTOs will have direct access to CBN windows for foreign exchange transactions, with same-day settlement options available for early trades.
On February 8, the CBN further liberalized the forex market with another circular aimed at enhancing market conditions. The Central Bank of Nigeria (CBN) recently issued a circular titled “Removal of the Spread on Foreign Exchange Transactions,” which eliminated the 2.5% cap on interbank forex spreads, allowing banks to set their own rates for currency transactions.
To improve transparency in the forex market, the CBN announced on February 14 that payments for Personal and Business Travel Allowances (PTA/BTA) can only be made through electronic channels, banning cash payments entirely. This decision aims to mitigate foreign exchange malpractices.
A significant challenge for the banking sector in 2024 was the overdue $7 billion in foreign exchange forward transactions. During a February interview, CBN Governor Olayemi Cardoso revealed that a forensic audit of these transactions uncovered irregularities amounting to $2.4 billion. In March, the CBN claimed to have cleared all valid forex backlogs, including $600 million owed to foreign airlines. However, members of the Organized Private Sector (OPS) contested this statement, asserting that many businesses still have funds frozen in banks without clear communication from the CBN regarding the validity of their forex requests.
Segun Kuti-George, the National Vice President of the Nigerian Association of Small-Scale Industrialists, criticized the CBN’s claims as “propaganda,” indicating that many businesses are considering legal action to prompt CBN intervention. In October, following presidential involvement, the CBN announced a re-validation exercise to address manufacturers’ and importers’ concerns regarding the disputed $2.4 billion in foreign exchange claims.
During a special summit dinner hosted by the Nigerian Economic Summit Group in Abuja, CBN Governor Olayemi Cardoso announced that the Central Bank of Nigeria (CBN) has completed the first stage of verification for manufacturers’ claims and is now undergoing a second stage for further authentication.
In a bid to boost dollar supply in the forex market, the CBN implemented a new policy for International Oil Companies (IOCs), restricting them from immediately remitting all of their dollar revenues abroad. Under this new regulation, IOCs are allowed to remit only 50% of their dollar proceeds immediately, with the remaining 50% to be remitted after a 90-day period. This policy was detailed in a circular issued by Trade and Exchange Director Hassan Mahmud.
Additionally, on February 28, the CBN announced it would sell $20,000 to each Bureau De Change (BDC) to address price distortions affecting the retail forex market, which contribute to widening gaps with the parallel market. However, on March 1, the CBN revoked the licenses of 4,173 BDC operators due to non-compliance with various regulations, including failing to pay fees and adhere to anti-money laundering guidelines.
On May 23, the Central Bank of Nigeria (CBN) introduced new operating guidelines for Bureau De Change (BDC) operators, establishing two categories—Tier 1 and Tier 2—with minimum capital requirements of N2 billion and N500 million, respectively. Existing BDCs have six months to apply for new licenses based on these categories. The guidelines also restrict BDCs’ foreign currency holdings to 30% of unimpaired shareholders’ funds and limit total borrowing to 50% of the same.
To enhance transparency in the forex market, the CBN announced the introduction of the Electronic Foreign Exchange Matching System (EFEMS) on October 3. This system aims to reduce speculative practices and market distortions. After a two-week test run in November, the CBN confirmed EFEMS would officially launch on December 2, 2024, using the Bloomberg BMatch platform for FX transactions. The minimum trade size on the platform is set at $100,000, with increments of $50,000. Following its launch, the Naira experienced a significant appreciation against the dollar, marking the first increase since May.
Additionally, the Federal Government announced the “Foreign Currency Disclosure, Deposit, Repatriation, and Investment Scheme” on October 31, providing a nine-month grace period for Nigerians to voluntarily disclose and deposit foreign currency holdings in banks. According to Finance Minister Wale Edun, the scheme aims to integrate foreign currency into the formal economy, promoting transparency and economic resilience. In support of this initiative, the CBN instructed commercial, merchant, and non-interest banks to open domiciliary accounts for participants in the program.
On February 9, the banking sector was deeply impacted by the tragic death of Herbert Wigwe, CEO of Access Corporation, in a helicopter crash near the California-Nevada border. The accident also claimed the lives of his wife, Chizoba, their son, and former Nigerian Exchange Group President Abimbola Ogunbanjo. Wigwe was instrumental in establishing Access Bank as Nigeria’s largest bank and served as the Chairman of the Body of Bank CEOs until his passing.
In a significant move for the banking industry, the Central Bank of Nigeria (CBN) announced new minimum capital requirements on March 28, initiating a recapitalization exercise with a two-year deadline. The new requirements stipulate that commercial banks with national authorization must have a minimum capital of N200 billion, while regional banks need N50 billion. Merchant banks now require N50 billion, and non-interest banks need N20 billion for national authorization and N10 billion for regional authorization.
Importantly, the CBN clarified that retained earnings would not be included in the minimum capital calculation, meaning banks must rely solely on paid-up capital and share premium. This announcement spurred a wave of capital-raising initiatives, as banks sought investments through public and rights issues to comply with the new regulations by the deadline of March 31, 2026.