Official! 7 banks control industry assets, deposits; 7 fail stress test
Strongest, biggest, are systemically important banks 63% assets in control 66% of loan bookings 65% deposits in their vaults Competition still fierce Headwinds hovering over some weak, midsize players New entrants keeping it real, lean and mean
IN WHAT MANY CLAIRVOYANTS WOULD want to easily lap up, Nigeria’s banking industry has turned out a fasciactually nating set of numbers, 7 and 7 following the release by the Central Bank of Nigeria (CBN) of its Financial Industry Stability Report (FISR) for December 2018 showing that the entire banking industry is controlled by just seven banks who, together, hold more than half of its assets, more than half of its deposits, and
more than half of the industry’s loan book.
On the flip side, however, with that ring of clairvoyance again, there are 7 banks who the FISR says failed the CBN liquidity stress test as at December 2018, just 10 months ago. Business a.m. has chosen not to name the af- fected banks based on our sense of journalistic responsibility knowing the negative fallout it could have on the system, but it does point to the headwinds the seven affected banks have been up against in an economy that has become tighter this year and competition has become fiercer in the industry.
The seven banks that con- trol the industry are among the privileged few classified by the CBN as the ‘domestic system- atically important banks’, the too big to fail who bestrode the financial services industry with their teeth firmly on every meat on the bone.
These banks, according to the report, accounted for N35.10 trillion or 63.80 percent of the banking industry total assets and N21.73 trillion or 65.23 percent of total deposit as at end December 2018. They also accounted for N15.34 trillion or 66 percent of the industry total loans.
The seven banks, categorised as domestic systemically important banks (D-SIBs), were selected based on the D-SIB supervisory framework, given their size, interconnectedness, substitutability and complexity.
The CBN said its examination of the D-SIBs revealed that they were largely in compliance with the regulatory requirements, including capital adequacy and liquidity ratios.
“The average CAR for the DSIBs stood at 19.82 per cent, while liquidity ratio stood at 46.29 per cent. There was an improvement in non-performing loans ratio from 11.31 per cent at end-June 2018 to 9.82 per cent at end-December 2018,” the report said.
The report further disclosed that the market shares of the largest bank with respect to deposits and assets stood at 13.54 and 14.35 per cent respectively, while the remaining twenty banks had market shares ranging from 0.09to 4.89 per cent, in deposits, and 0.14 to 4.89 per cent in assets, reflecting the skewed structure of the banking industry.
“The concentration ratio (CR) of the six largest banks with respect to deposits and assets stood at 60.31 and 59.74 per cent at endDecember 2018, compared with the 57.68 and 63.68per cent recorded at end-June 2018, respectively”, the report highlighted.
At the bottom, troubled end of the banking industry examination, the report identified seven banks out of the country’s 21 commercial banks and five merchant banks with liquidity problems from a stress test the CBN conducted at the end of December 2018.
The report also revealed that eight other banks, which had credit concentration risk, were unable to close liquidity gaps in other buckets.
The unnamed seven banks that had liquidity problems were those with maturity mismatch, meaning that when the owners of the money come calling, the banks would not be able to pay because the money had been tied to long term projects as against the short term nature of the funds.
The CBN said it conducted the stress test to evaluate and determine the resilience of the industry to probable and adverse shocks, including credit, liquidity, interest rate and contagion risks.
It said while the baseline industry capital adequacy ratio (CAR) was 15.26 per cent, indicating 3.18 percentage points increase from the 12.08 per cent recorded at end-June 2018; however, the baseline banking industry non-performing loan for the period was 11.64 per cent, showing a slight improvement of 0.81 percentage points from the 12.45 per cent recorded at endJune 2018
The stress test result revealed that after a one-day run scenario13, the liquidity ratio for the industry declined to 34.69 per cent from the 51.87 per cent pre-shock position and to 17.55 and 13.48 per cent after a 5-day and cumulative 30-day scenarios, respectively.
“The result also revealed that under 5-day and cumulative 30day run scenarios on the banking industry, liquidity shortfalls declined to N1.58 trillion and N1.98 trillion respectively,” the report revealed.
The results of the system wide mismatch for static roll over analysis (no option of roll over) and dynamic rollover test (with the option of closing the mismatch from other buckets) had mismatches of N6.3 trillion and N7.1 trillion respectively.
On the result of its liquidity stress test, the CBN said it noticed immediate deterioration of the industry’s liquidity position after a one-day run.
“The stress test result revealed that after a one-day run scenario, the liquidity ratio for the industry declined to 34.69 per cent from the 51.87 per cent pre-shock position and to 17.55 and 13.48 per cent after a 5-day and cumulative 30-day scenarios, respectively.
“The result also revealed that under 5-day and cumulative 30day run scenarios on the banking industry, liquidity shortfalls declined toN1.58 trillion and N1.98 trillion respectively”, the report said.
The CBN report also revealed that the shareholders’ funds of development financial institutions during the review period decreased by 26.41 per cent to N248.88, from N338.18 billion at end-June 2018.
The decline, it said, was due mainly to the losses reported by Bank of Agriculture (BOA), Federal Mortgage Bank (FMBN), Nigerian Export-Import Bank (NEXIM) and The Infrastructure Bank (TIB)
“Bank of Industry (BOI), DBN and FMBN accounted for 56.08, 14.39 and 11.96 per cent of the total assets of the DFIs, while BOA, NEXIM, NMRC and TIB accounted for 7.63, 6.08, 3.58 and 0.29 per cent respectively.
“The BOI, FMBN, BOA, NEXIM, DBN and NMRC accounted for 69.37, 16.23, 5.10, 4.35, 3.08, and 1.87 per cent of the total net loans and advances during the period”, it said.