Top members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) have expressed concern over continued reduction in the value of banking asset occasioned by the depreciation of the naira.
In their personal statements available on CBN’s website on Friday, Barau, Suleiman said that from the financial sector development, the depreciation of the domestic currency has reduced the value of banking asset in real terms.
Recent statistics showed that total banking assets denominated in US dollar reduced by 27.4 per cent in 2016 compared to the level in 2015 on account of currency depreciation of about 55 per cent during the period.
His word: “The reduction in asset in real term coupled with the elevated Non Performing Loans (NPLs) would therefore weigh on the capacity of the banks to support the recovery process.”
In the same way, Mr Adebayo Adekola Adelabu, Deputy Governor, Corporate Services CBN observed that the contraction in output has reduced profitability of firms and business outfits, leading to escalation of NPLs in the banking industry while depreciation of the naira, on the other hand, has reduced the asset base of the banking sector in real term, thereby constraining their intermediation capacity.
The banking industry according to him, has been reacting to this adverse developments through a gradual cut in credit, particularly, credit to the private sector.
Another member of the committee Balami, Dahiru Hassan commenting during the May 2017 MPC meeting said the meeting met a deteriorating situation of the Nigerian financial sector. According to him, the result of the stress tests showed that capital adequacy ratio had deteriorated from 13.6 per cent in February to 12.81 per cent in April, which is below the prudential requirement of 15 per cent for banks with international authorization.
“The NPLs have also risen to 15.18 per cent from 13.59 per cent in February 2017 which is far above the prudential limit of 5 per cent. The liquidity ratio has also registered a decline from 46.61 per cent to 44.60 per cent.
“When compared with the prudential limits of 30 per cent, it can be seen that the interbank market has not been active, reflecting the fact that banks have not been trading among themselves which is not a desirable situation,” Hassan stated.
He further said some of the banks are making use of the Standing Lending Facility (SLF) which under normal circumstances is meant for weaker banks. This according to him, needs to be discouraged, even though he further noted, with the bad ratios, banks are still making profit.
Although the members noted that the performance of the commercial banks is unduly affected by the relatively poor performance of a few of the Banks, the matter is being vigorously addressed by the CBN.
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