H1'23 witnessed numerous twists critical to the banking sector outlook. These twists included the abolition of FX market segmentation, the entrenchment of a 2-way quote system premised on the willing buyer-seller mode and plans to normalise the use of the CRR as a monetary policy tool. The FX-linked reforms resulted in a devaluation of the naira to N769.25/$ in June 2023 from its 2022 closing rate of N461.50/$, essentially reducing the parallel market premium. In our view, these reforms have opened up a seismic shift in the Nigerian banking sector outlook, with banks reassessing their operational capabilities to capture opportunities whilst repealing existential threats. In this report, we examine the intricacies of the banking sector as it relates to the impact of a free-float FX system vis-à-vis banks' balance sheet exposures, asset portfolio & associated loss provisioning, statutory requirements via capital adequacy & NPL ratios, and the return of orthodox monetary policies.
