Three banks operating below 30% capital requirement —CBN

Central Bank of Nigeria

THREE commercial banks are operating below the Minimum Regulatory Liquidity Ratio of 30 per cent, the Central Bank of Nigeria (CBN) has said.

Liquidity ratio expresses a company’s ability to repay short-term creditors out of its total cash. It shows the number of times short-term liabilities are covered by cash; an amount of cash or assets that can be converted to cash, a bank must hold in order to operate.

If the value is greater than 1.00, it means fully covered.

The apex banking regulator, in its economic report released by CBN last week.stated that, “with the exception of three commercial banks, all others met the minimum regulatory liquidity ratios of 30.0 per cent for commercial banks; 20.0 per cent for merchant banks; and 10.0 per cent for non-interest banks, at end-June 2018.”

Although the CBN did not name the banks,  investigations by Proshare Analysts reveal that the executive directors of one of the affected lenders recently resigned their appointment.

The analysts also reveal that liquidity ratio of one of the new generation banks that plays well in innovation in Nigeria is below minimum regulatory requirements.

The third bank according to Proshare Nigeria is one of the banks which new investor  took control of, in March 2017 from the Asset Management Corporation of Nigeria (AMCON).

However, the central bank in its report noted that the health of banks improved in the review period, following the sustained recovery in macroeconomic conditions, including declining inflation, stable exchange rate and gradual upswing in the real sector economy.

“At end-June 2018, the industry average capital adequacy ratio (CAR) was 12.08 per cent, compared with 10.23 per cent and 11.51 per cent at end-December 2017 and end-June 2017, respectively. The development reflected the increase in banks’ total qualifying capital. The industry threshold, however, remained at 15.0 per cent for banks with international authorisation and 10.0 per cent for banks with either national or regional authorisation,” it read in part.

Asset quality of the banking industry, measured by the ratio of nonperforming loans to total loans (NPL ratio) according to CBN fell to 12.45 per cent at end-June 2018, compared with 14.80 per cent and 15.02 per cent at end-December 2017 and end-June 2017, respectively. At this level, the ratio, remained above the regulatory threshold of 5.0 per cent.

The decrease in the NPL ratio reflected the effect of the favourable macroeconomic conditions and stricter prudential regulation. To further consolidate on the improvement, the CBN directed banks to intensify efforts at debt recovery, realisation of collateral for lost facilities and strengthening their risk management processes.

Loan loss provision was 75.74 per cent at end-June 2018, as against 80.4 per cent in the corresponding period of 2017. The industry liquidity ratio increased to 46.09 per cent at the end of the first half of 2018, from 45.8 per cent at end-June 2017, reflecting the rise in the stock of liquid assets held by banks.