Digital Banking Transactions Surge to N600 Trillion, Report Finds

Transactions through digital banking channels in Nigeria have surged by 55 percent, reaching an impressive N600 trillion, according to a new report by Afrinvest. The report, titled “Bank Recapitalisation: Catalyst for a $1tn Economy,” highlights a significant increase in the use of digital financial services.

The report reveals that the finance and insurance sector, a key indicator of the banking industry’s health, has seen substantial growth. The sector grew by 10 percent in 2021 and 16.4 percent in 2022. This growth accelerated to 26.5 percent in 2023.

Afrinvest Research credits this growth to several factors, including the rising use of digital financial channels, improved optimization of interest rates for trading and loan pricing, and favorable Net Open Position (NOP) that led to notable revaluation gains. The report estimates these revaluation gains at around $1.7 billion.

Despite these positive trends, the future of the banking sector remains uncertain due to Nigeria’s severe inflation crisis. Inflation reached a peak of 34.0 percent in the 12 months leading up to May 2024. Although the headline inflation rate eased slightly to 33.4 percent in July 2024, compared to 34.19 percent in June 2024, the economic environment continues to be challenging.

Afrinvest suggests that banks need to strengthen their risk management frameworks and invest more in cost-effective digital channels. The report also recommends that banks explore new business opportunities both horizontally and vertically to build resilience against systemic risks.

To ensure long-term stability, the report calls for comprehensive fiscal and monetary policies that address key structural issues. These include security concerns, infrastructure gaps, and liquidity management. Additionally, Afrinvest emphasizes the need to optimize foreign exchange inflows and prevent financial leakages to mitigate the impact of high inflation.

“Given the highlighted risks that could arise from prolonged high inflation, we recommend that banks enhance their risk management frameworks, invest in cost-effective digital channels, and explore new business opportunities to improve resilience against systemic risks,” the report advises.

Afrinvest concludes that a coordinated effort in fiscal and monetary policies is essential. Addressing structural challenges such as insecurity and infrastructure deficits, optimizing foreign exchange inflows, and strengthening liquidity management are crucial steps toward resolving Nigeria’s ongoing high inflation issues.