Despite a decline in the total qualifying capital of the nation’s 24 commercial banks relative to the increase in risk weighted assets due to the depreciation of the Naira exchange rate, the Central Bank of Nigeria (CBN) insists Nigerian banking industry remains strong and resilient.
The apex bank was reacting on Monday to certain reports in the media that most of the 24 banks in the country failed the Capital Adequacy Ratio (CAR) stress test for international authorisation.
The CBN spokesperson, Hakama Sidi-Ali, said key financial soundness indicators of the banks captured in the CBN’s most recent Economic Report showed they were within the regulatory thresholds.
The Financial Soundness Indicators contained in the Second Quarter 2023 CBN Economic Report published in apex bank’s official website revealed the banking system Capital Adequacy Ratio (CAR) fell by 3.0 percentage points to 11.2 percent, relative to the 14.2 percent recorded in the preceding quarter.
The ratio, the report stated, was above the 10.0 percent benchmark for banks with national/regional authorisation, but below the 15.0 percent threshold for banks with international authorisation.
“The development reflected a decline in the banks’ total qualifying capital relative to the increase in risk weighted assets due to the depreciation of the Naira exchange rate, as a result of the adoption of a market determined exchange rate policy by the Bank,“ the report said.
Besides, the report noted that the banks’ asset quality, measured by the ratio of Non-Performing Loans
(NPLs) fell marginally by 0.4 percentage point to 4.1 percent in the second quarter of 2023 from 4.5 percent in the previous quarter, reflecting sustained improvement in loan recoveries by banks.
The ratio, the report added, was below the prudential benchmark of 5.0 per cent, while the Industry Liquidity Ratio (LR) rose significantly by 10.9 percentage points to 62.2 percent in the review quarter, compared with 51.4 percent, recorded in the preceding quarter.
The LR was above the minimum regulatory benchmark of 30.0 percent, showing the ability of the banks to meet their obligations.
On steps the CBN was considering to remedy the situation, Sidi-Ali said the Bank would be engaging with various critical stakeholders to sustain the level of confidence in the Nigerian financial sector.
Since the recent unveiling of plans by the CBN to demand the banks to raise their capital base to boost their capacity to play in the projected $1 trillion Nigerian economy envisaged by the Tinubu administration, some critics have continued to express doubts about that ambition becoming a reality against the background of low capital bases of most of the commercial banks barely sufficient to guarantee their survival.
Indications are that none of the 24 banks would possess the financial muscle to operate independently in the $1trillion economy, except they agree to mergers.
With the aggregate value of goods and services in the economy, in terms of the nation’s gross domestic product (GDP) currently below an average of $400 billion, the critics have expressed fears that none of the 24 deposit money banks in the country has the financial capacity to fund activities towards realising the $1trillion economy.
