Why You Should Read Your Bank’s Annual Report as a Regular Customer

Most Nigerians do not choose a bank because of its financial strength. We choose because the branch is close to the office, the mobile app looks simple, transfers are fast, or a friend introduced us to an account officer. If salary enters without delay and the ATM card works, we assume the bank is doing well.

That assumption may be correct, but it is still an assumption.

A bank’s annual report gives you a better way to judge the institution holding your money. It will not tell you everything, and it cannot promise that nothing will go wrong after the report date. It can, however, show you how the bank makes money, how much risk it carries, whether bad loans are rising, whether regulators have imposed penalties, and whether an independent auditor found serious problems in the accounts.

Many people think annual reports are written only for shareholders, stockbrokers and accountants. That is not true. A regular customer may have more immediate reasons to read one than a person who owns a few shares. Your salary, school fees, business proceeds, emergency savings and rent money may all pass through the bank. If you run a small business, the bank may also hold money meant for suppliers and workers. You may not own the bank, but the bank owes you money.

When you deposit ₦500,000, the cash does not sit in a separate envelope carrying your name. The deposit appears as a liability in the bank’s accounts because the bank must return it to you when due. The bank combines deposits from customers and uses part of the money for loans, investments and other approved activities. It earns income from those activities and keeps enough liquid funds to meet withdrawals and payments.

That arrangement works because customers trust the bank, regulators supervise it and the bank manages its risks properly. The annual report allows you to see part of that system for yourself instead of depending on adverts, social media arguments or the appearance of a banking hall.

You do not need to read every page. Some Nigerian bank reports are more than 200 pages long. They contain accounting policies, tables and technical notes that may not matter to an ordinary customer. The useful approach is to know where to look and what each section is saying.

Start by getting the report from the bank’s official website, the website of its holding company, or the Nigerian Exchange page for a listed group. Avoid a document forwarded through WhatsApp unless you can confirm it against an official source. Use the most recent audited annual report, not an unaudited presentation prepared mainly to announce profit.

I usually begin with the five-year financial summary or the financial highlights. This gives a quick view of the direction of the bank. Look at customer deposits, total assets, loans, profit, shareholders’ equity and bad loans across several years. One good year can be misleading. A pattern is more useful.

If customer deposits have grown every year, that may show that more people and companies trust the bank. It may also reflect inflation, a merger, foreign currency translation or aggressive deposit mobilisation. If loans are growing much faster than deposits and capital, ask how the bank is funding that growth and whether the quality of the loans is holding up. If equity has weakened while assets continue to expand, the bank may have a thinner cushion against losses.

The profit figure will attract the most attention, but profit alone does not tell you whether a bank is safe. A bank can announce hundreds of billions of naira in profit while facing growing credit losses, weak liquidity or a capital shortage. It can also report a large profit because the naira value of foreign currency assets increased after devaluation. That accounting gain may be real, but it is not the same as cash earned from ordinary lending and customer transactions.

Look at where the profit came from. Interest income is earned mainly from loans, government securities and other interest-bearing assets. Fee and commission income can come from transfers, account services, cards, trade finance and similar activities. Trading income and foreign exchange gains can move sharply from one year to another. If most of the improvement came from a one-off sale, a currency revaluation or another unusual item, do not assume the same profit will return next year.

Also check the amount charged for impairment. Impairment is the bank’s estimate of money it may lose on loans and other financial assets. When borrowers stop paying, the bank is expected to recognise the risk instead of pretending that every loan will be collected in full. A rising impairment charge can reduce profit, but it may also show that the bank is recognising problems early. A very low charge is not automatically good if bad loans are rising at the same time.

The notes on loans and advances deserve attention because lending is one of the largest risks in banking. Look for the value of gross loans, impaired loans, non-performing loans and the allowance for expected credit losses. These terms sound technical, but the main question is simple: how much of the bank’s loan book is in trouble, and how much has the bank set aside for the possible loss?

Compare the non-performing loan ratio with the previous year. If the ratio rises from 3 per cent to 6 per cent, find out what management says caused the increase. It may be linked to one large borrower, a weak industry, currency changes or a general fall in repayment. Then check whether the impairment allowance also increased. A bank with rising bad loans and weak provisions deserves closer attention, even if its headline profit remains high.

Do not stop at the total loan figure. Check where the loans are concentrated. A bank may have large exposures to oil and gas companies, real estate developers, state governments, manufacturers or import-dependent businesses. Concentration is not always bad. Banks often develop expertise in certain sectors. The risk is that one shock can hurt many borrowers at the same time.

For example, a bank with a heavy concentration in foreign currency loans can face pressure when the naira falls and borrowers earn mainly in naira. A bank that lends heavily to one industry can suffer if prices collapse or government policy changes. The risk management section normally explains the largest sector exposures, foreign currency risk and how the bank tests its ability to survive difficult conditions.

Capital is another word that regular customers should understand. It is not the same as customer deposits, and it is not the same as the cash inside branches. Capital belongs to the bank’s owners and serves as a cushion that can absorb losses before depositors are affected. A well-capitalised bank has more room to survive bad loans and other shocks.

One useful measure is the capital adequacy ratio, often shortened to CAR. It compares the bank’s qualifying capital with its risk-weighted assets. Assets that carry more risk require more capital. A higher ratio generally means the bank has a larger buffer, but the figure should be compared with the regulatory minimum for that bank’s licence and with previous years. The annual report usually states both the bank’s ratio and the required level.

Do not confuse the capital adequacy ratio with the minimum paid-up capital required for a banking licence. They measure different things. In March 2024, the Central Bank of Nigeria announced new minimum capital requirements and gave existing banks until 31 March 2026 to comply. It set different amounts for commercial banks with international, national and regional licences, as well as merchant and non-interest banks. The CBN also made clear that meeting the new paid-up capital figure did not remove the duty to comply with the applicable capital adequacy ratio. A customer’s practical concern is to check the latest annual report and official CBN communication for the bank’s current position, not to rely on an old headline about a public offer.

Liquidity tells you whether the bank can meet withdrawals and other obligations when they fall due. A bank can own valuable loans and properties and still face trouble if it cannot turn enough assets into cash quickly. This is why the liquidity ratio, funding mix and liquidity risk report matter.

Read what the bank says about its liquid assets, loan-to-deposit ratio, reliance on short-term borrowing and stress tests. Look for a clear statement that it remained above the regulatory liquidity requirement during the year. One year-end number is not a complete picture because liquidity changes daily, but a weak ratio or repeated breaches would be an important warning.

The mix of deposits can also tell you something. A bank funded by millions of small retail deposits may behave differently from one that depends heavily on a few large corporate depositors. Large deposits can leave quickly when companies need cash. Retail deposits are usually more spread out, although they can also move during a period of panic. Annual reports often divide customer deposits into current accounts, savings accounts, term deposits and different customer groups.

After the financial highlights, I move to the independent auditor’s report. This is one of the most important parts of the document, and it is often ignored because people assume the language is too formal.

The auditor examines the financial statements and gives an opinion on whether they present the bank’s position fairly under the applicable reporting rules. An unmodified or clean opinion is the result a customer would normally expect. A qualified opinion means the auditor found a material problem in a specific area, although the rest of the statements may still be fairly presented. An adverse opinion means the accounts are materially misleading. A disclaimer means the auditor could not obtain enough evidence to give an opinion.

You should also search the auditor’s report for the words “going concern” and “material uncertainty.” Going concern means the bank is expected to continue operating for the foreseeable future. If the auditor draws attention to a material uncertainty about the bank’s ability to continue, that is not a sentence to skip. Read the related note and any response from management.

A clean audit opinion does not mean a bank can never fail. An audit provides reasonable assurance about the financial statements at a particular date. It is not a guarantee against every fraud, bad decision, economic shock or event that happens later. Still, a modified opinion or a serious going-concern warning deserves attention from anyone keeping substantial money with the institution.

The section called key audit matters shows the areas that required the most attention from the auditor. In a bank, expected credit losses on customer loans often appear there because the calculation depends on economic forecasts, borrower data and management judgement. Valuation of complex financial instruments, foreign currency positions and business acquisitions may also appear. Key audit matters are not automatically evidence of wrongdoing. They tell you where the accounts involved difficult estimates or greater risk.

Regulatory penalties are another section worth reading. Nigerian banks are required to disclose contraventions of banking laws and CBN circulars. A penalty may arise from late reporting, anti-money laundering failures, foreign exchange rules, customer protection problems or another breach.

Do not judge a bank only by the size of one fine. A large bank can receive a large penalty because of the scale of its operations. Look at the reason, whether the same offence appears repeatedly and whether management explains what was corrected. A pattern of recurring penalties can say more about internal discipline than a polished statement from the chairman.

Related-party transactions also matter. These are dealings involving directors, major shareholders, subsidiaries or connected companies. A bank may legally do business with related parties if the transactions are properly approved, priced and disclosed. The danger appears when insiders receive large loans on favourable terms, fail to repay them, or use their influence to move value out of the bank. Check the related-party and director-related exposure notes for the amounts, terms and repayment status.

One part of a Nigerian bank’s report that ordinary customers may find especially useful is the customer complaints table. It can show how many complaints were brought forward, how many were received during the year, how much customers claimed, how much the bank refunded and how many cases remained unresolved. A current Nigerian bank report can also include separate reports on frauds and forgeries, regulatory contraventions, related parties, liquidity risk and capital management. The index of Access Bank’s audited 2025 financial statements is one example of how these disclosures are organised.

Complaint numbers require context. A bank with 30 million customers will probably receive more complaints than a bank with one million customers. The useful questions are whether complaints are rising faster than the customer base, whether the bank resolves most cases, how much money is involved, and whether unresolved claims are growing. If digital failures, unauthorised transfers and delayed reversals keep increasing, customers should not ignore the pattern.

The fraud and forgery report deserves the same careful reading. Separate the number of attempted cases from the amount actually lost. Check whether employees were involved, how much was recovered and what the bank says it changed. A higher number of reported fraud attempts does not always mean the bank has the weakest controls. It may also reflect its size, stronger detection or better disclosure. What matters is the trend, the financial loss and management’s response.

Cybersecurity and technology risk now affect everyday banking as much as credit risk. Nigerians depend on mobile apps, USSD, cards, agency banking and instant transfers. The annual report may discuss system availability, cybersecurity governance, technology spending and operational incidents. It will not tell you how the app will behave on a particular Friday evening, but it can show whether the board treats technology as a central risk or as a marketing topic.

Look at the governance report as well. Note changes in the chairman, managing director, chief financial officer and independent directors. Frequent departures do not always mean trouble, but sudden changes in several senior positions may require an explanation. Check whether the board has experienced members on its risk, audit and technology committees. Also check who controls the bank and whether the ownership structure is easy to understand.

The notes on legal cases and contingent liabilities can reveal claims that have not yet become confirmed losses. Banks face lawsuits from customers, employees, regulators and business partners. Most large banks will have legal cases, so the existence of litigation is not enough to cause panic. Pay attention to the amounts, the nature of the cases, management’s estimate of possible loss and any sharp increase from the previous year.

Read the events-after-the-reporting-date note before you finish. An annual report may cover the year ending 31 December but be published several months later. A major acquisition, capital raise, court decision, regulatory action or sale of a subsidiary may occur during that gap. The note tells you about important events after year-end that could affect your understanding of the figures.

Deposit insurance is another reason to know the strength of the bank holding your money. The Nigeria Deposit Insurance Corporation increased the maximum insurance cover for depositors of deposit money banks to ₦5 million per depositor in 2024. The limit is not ₦5 million for every account you open in the same bank. It is applied per depositor at the insured institution, subject to the relevant rules.

If an insured deposit money bank fails, NDIC pays up to the insured limit. Money above that amount is not automatically lost, but repayment of the excess may depend on the sale of the failed bank’s assets and recovery of its loans. NDIC demonstrated this process after the closure of Heritage Bank, when it paid the insured amount and treated balances above the limit as uninsured deposits payable through liquidation dividends as assets were realised. The NDIC explanation of the ₦5 million coverage and its update on payments to Heritage Bank depositors show why customers with large balances should understand both bank strength and insurance limits.

This does not mean you should withdraw your money whenever one ratio falls. Banks operate in an economy where interest rates, exchange rates, inflation and government policies change. A figure can weaken for a reasonable temporary cause. It also does not mean every customer must spread a small balance across five banks. The point is to make decisions with facts.

If you keep ₦200,000 for monthly expenses, your risk and needs are different from those of a trader who keeps ₦20 million for stock purchases or a company that holds payroll funds for 100 workers. The customer with the larger balance should pay closer attention to concentration. Using more than one sound bank can reduce disruption if one bank has a long outage, places a restriction on an account or faces a serious problem.

You can read a bank’s report in about 30 minutes if you follow a fixed order. Check the financial highlights and five-year summary first. Read the auditor’s opinion and search for going concern. Review capital adequacy, liquidity, non-performing loans and impairment. Check regulatory penalties, related-party transactions, complaints, fraud reports, legal claims and events after the reporting date. Compare every important figure with at least the previous two years.

Do not depend on percentages without looking at the actual amounts. A bad-loan ratio can fall because the bank issued many new loans, even when the amount of bad loans increased. Profit can rise in naira while losing value after inflation. Customer deposits can rise because foreign currency balances were translated at a weaker exchange rate. Read the note beside the number before drawing a conclusion.

You should also separate the holding company from the bank. Many Nigerian banking groups now have holding-company structures with businesses in pensions, insurance, payments or asset management. The group accounts combine these operations. If your concern is the safety of deposits in the Nigerian bank, look for the separate figures for the bank as well as the consolidated group figures. A strong non-banking subsidiary can improve group profit without answering every question about the deposit-taking bank.

An annual report is historical. By the time you read it, some figures may be several months old. After reading it, check the latest interim financial statements, the bank’s official announcements, and notices from the CBN or NDIC. Be careful with rumours posted by anonymous accounts. A claim that a bank is distressed can cause unnecessary fear, while a sponsored article can hide genuine concerns. Official filings and regulator notices should carry more weight.

Reading an annual report will not turn you into a bank examiner. It will make you a more informed customer. You will understand why a bank is offering an unusually high fixed-deposit rate, why it is raising new capital, why it is merging with another institution, or why management keeps talking about reducing risky loans. You will also know which questions to ask your relationship manager instead of accepting a sales pitch without evidence.

I do not think customers need to become suspicious of every bank. Banking depends on confidence, and Nigeria’s financial system has regulators, capital rules, liquidity rules and deposit insurance for a reason. Confidence is stronger when it is based on information.

Your bank already knows a great deal about you. It verifies your identity, monitors your transactions, checks your credit history and asks questions about the source of your money. It is reasonable for you to spend a short time each year learning about the institution on the other side of that relationship.

The next time your bank publishes an annual report, do not scroll past it because you are not a shareholder. Download it, read the important pages and compare the numbers with the previous year. The report may confirm that your bank is well run. It may show risks that are being managed properly. It may also give you a reason to reduce the amount you keep there or ask better questions.

Whichever answer you find, you will be making a decision with more than a working mobile app and a familiar logo. That is a better way to choose where your money stays.