Digital Banking Transactions Surge 55% to N600tn Amid Sector Growth

Banking transactions through digital channels in Nigeria have surged by 55% to N600 trillion, according to a new report by Afrinvest. The report, titled “Bank Recapitalisation: Catalyst for a $1tn Economy,” reflects a robust uptick in digital financial activities, underscoring the sector’s significant shift towards technological adoption.

The Afrinvest report also noted substantial revaluation gains estimated at $1.7 billion, reflecting a period of notable financial dynamism within the sector. The finance and insurance sector, often considered a bellwether for banking performance, has demonstrated impressive growth, with rates climbing from 10% in 2021 to a remarkable 26.5% in 2023.

Several factors have contributed to this growth, according to Afrinvest Research. These include the rising utilisation of digital financial channels, effective optimisation of interest rates for trading and loan pricing, and a favourable Net Open Position that has led to significant revaluation gains. However, despite these gains, the report highlights an underlying uncertainty due to the persistent high inflation that could jeopardise the sector’s stability and growth prospects.

Nigeria is currently grappling with its most severe inflation crisis in over 30 years, with the inflation rate soaring to 34.0% in the 12 months leading up to May 2024. Although headline inflation eased slightly to 33.4% in July 2024 from 34.19% in June, the high inflationary environment continues to pose challenges for the financial sector.

Afrinvest advises banks to bolster their risk management frameworks, invest more in cost-effective digital channels, and explore new business opportunities across both lateral and vertical segments to enhance resilience against systemic risks. The report emphasises that for long-term stability, a comprehensive approach to fiscal and monetary policy is crucial. This includes addressing structural issues such as security concerns, infrastructure deficits, and liquidity management.

The report also stresses the importance of optimising foreign exchange inflows and preventing financial leakages to mitigate the adverse effects of high inflation.

“Given the highlighted risks from prolonged high inflation, we recommend that banks enhance their risk management frameworks, scale up investments in cost-effective digital channels, and explore new business opportunities to bolster resilience against systemic risks,” the report states.

Afrinvest underscores that effective fiscal and monetary policies—encompassing security improvements, infrastructural enhancements, and robust liquidity management—are essential for addressing Nigeria’s inflation challenges. The report calls for a concerted effort to address structural bottlenecks and optimisefinancial inflows to support the sector’s continued growth and stability.