Banking sector prudential indicators within acceptable levels-MPC members

MEMBERS of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) have expressed satisfaction over the strength Nigerian banks despite the devastating effects of the Coronavirus (COVID-19) on the country’s operating environment.

According to them, major prudential indicators in the banking sector were within acceptable levels, underscoring the resilience of the sector.

According to them, stress tests on the banking industry also confirms a resilient sector that is able to survive the effects of COVID-19 pandemic and volatility in the oil market.

The MPC members: Shonubi Folashodu, Ahmad Aishah, Adamu Edward Lamtek, and Adenikinju Adeola Festus made this revelation in their personal statement during the 274th meeting of the Committee held on July 20, 2020, against the backdrop of sustained global economic and financial uncertainties.

Specifically, the members noted that the sector remains strong as Loan-to-Deposit Ratio (LDR), Global Standing Instruction, streamlining of access to Open Market Operations securities and other complementary measures have been strong tail winds which have strengthened intermediation – via increased lending to the key sectors such as manufacturing, agriculture and consumer markets.

“Growth in the size of the sector continued, as total assets, deposits and credit maintained their upward trend. Industry capital adequacy ratio was at 15.0 per cent, same as the minimum prudential requirement, while liquidity ratio moderated to 37.0 per cent but was above the 30.0 per cent regulatory threshold. Non-performing loans ratio improved marginally to 6.4 per cent in June 2020, from 6.6 per cent in April 2020. Returns on equity and investment remained positive,” a member Folashodun stated.

This has partly reflected in improved industry risk profile, as Non-Performing Loans ratio declined from 6.6 per cent in April 2020 to 6.4 per cent in June 2020. Net interest margin remains robust despite lower interest income, perhaps due to much lower industry interest expense, as market deposit rates continue to decline.

According to the members, gross credit grew by an additional N300billion from N18.6 trillion to N18.9 trillion between end-April and end-June 2020, respectively, and lower market lending rates, which have insulated the financial system from the worst impact of the pandemic remains impressive, they stated.

Between June 2019 and June 2020, total credit rose by N3.46 trillion (about 22 per cent), of which new credit in June 2020 alone accounted for N773 billion, up from N412.7 billion in May 2020.

Despite the impact of the pandemic, the number of new credits (recipients) the members revealed similarly rose by about 42,000 to 93,578 from 51,700 in May.

The huge credit output in the economy was underpinned by improved resilience of the banking system.

As of end of second quarter (Q2),  most financial soundness indicators (FSIs) performed well relative to regulatory benchmarks.

The members further noted that in spite of macroeconomic challenges, banking industry tier one capital accounted for 87.22 per cent of the total qualifying capital at end-June 2020; capital adequacy ratio (CAR) stood at 14.96 per cent with non-performing loans (NPLs) ratio of 6.4 per cent and provision ratio of 118.9 per cent.

“The surge in new credit and its major destinations including agriculture and manufacturing in recent months, obviously lend credence to the efficacy of extant real sector support (policy) initiatives of the Bank – the minimum loan-to-deposit ratio (LDR), the differentiated cash reserves requirement (DCRR) and the development finance interventions,” one of the members observed.


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