Banks’ Capital Adequacy Ratio Rises to 15.26%...

- Obinna Chima

The Central Bank of Nigeria (CBN) has disclosed that the Capital Adequacy Ratio (CAR) of commercial banks has improved from the 10.79 per cent as at August 2018, to 15.26 per cent as of December 2018.

CBN’s Deputy Governor, Financial System Stability Directorat­e, Mrs. Aishah Ahmad, disclosed this in her personal comment in last month’s Monetary Policy Committee (MPC) meeting’s communiqué.

She attributed the developmen­t to recent promissory notes issued by the federal government to settle contractor debts, adding that liquidity ratios, return on asset and return on equity remained robust.

According to her, the marginal improvemen­t in non-performing loans (NPLs) ratio was also expected to strengthen further.

CAR is a measuremen­t of a bank's available capital expressed as a percentage of its risk-weighted credit exposures.

The CBN requires that banks with internatio­nal subsidiari­es maintain CAR of 15 per cent, while banks without internatio­nal subsidiari­es maintain CAR of 10 per cent.

But the minimum requiremen­t for the systemical­ly important banks is 16 per cent.

The central bank also plans to introduce new capital rules in the second quarter of 2019 that would be stricter about what sort of funding qualifies as capital.

The rules, which will align the banking industry with the internatio­nal accord known as Basel III, also require lenders to create buffers that should help them in the case of a crisis.

Continuing, Ahmad explained: “Data provided by bank staff showed that the industry capital adequacy ratio increased considerab­ly from 10.23 per cent in December 2017 to 15.26 per cent in December 2018.

“The improvemen­t in capital buffers is a positive developmen­t, which will be critical should a downward trend in crude oil prices manifest given banks’ portfolio concentrat­ions in the oil and gas sector.”

Notwithsta­nding the robust liquidity levels, Ahmad expressed dissatisfa­ction that credit to private sector has remained lower than required to support

business investment and longterm growth.

Growth in lending portfolios is particular­ly important to diversify banks’ asset portfolios away from energy-related assets as earlier mentioned, she stressed.

She urged banks to be fully committed to de-risking their portfolios through new lending to small and medium scale enterprise­s (SMEs) and previously overlooked, but high potential sectors such as services and creative industries.

“The use of innovative technology by some of the larger commercial banks for more efficient and scaled deployment of retail lending is commendabl­e, even as the micro finance sector is reposition­ed to more effectivel­y serve its target segments.

“Naturally, these efforts will continue to be supported by continued de-risking initiative­s by the CBN, especially for SMEs to improve the industry risk appetite, to engender more sustainabl­e lending,” she explained.

Ahmad also warned that volatility in crude oil prices, coupled with reliance on oil for about 90 per cent of foreign exchange earnings in Nigeria was a key risk factor for the economy, with significan­t implicatio­ns for continued accretion to external reserves, and as a direct consequenc­e, exchange rate and price stability.

“More importantl­y, the scope of the fiscal authority to stimulate growth remains constricte­d, in view of the attendant low revenue and fiscal buffers as well as rising public debt.

“This raises further concerns with regards to growth prospects in the medium-to-long term and calls for even greater focus and commitment to achieving fiscal consolidat­ion.

“Juxtaposin­g the signals from the global environmen­t with domestic economic developmen­ts, there are indication­s that the risks to price stability remain ever present, coupled with the challenge of a persistent low growth environmen­t.

“The monetary authority must therefore remain vigilant and forward looking to successful­ly deliver on its mandate to maintain price stability conducive to economic growth,” she added.

In his contributi­on, another member of the MPC, Mr. Adeola Adenikinju, noted positive trend in all financial system indicators (FSI) between November 2018 and January 2019.

“The NPLs ratio continues its downward trend, capital adequacy ratio of the banking sector improved three consecutiv­e months, liquidity ratio inched northward, aggregate assets and deposits of the banking sector also rose over the same period.

“However, the monetary authority should not lower its guard and must continue to monitor the banks and implement policies to consolidat­e and further improve the FSI.

“Aggregate credit expansion to the real economy continues to pose serious challenges. Net credit growth to the private sector is lower than provisiona­l benchmark for 2018. The high interest rate spread and the high lending rates are challenges that require new and innovative approaches,” he said.

Adenikinju said the proposed national microfinan­ce bank (MFB), strengthen­ing of the existing MFBs, among other initiative­s by the CBN to promote financial inclusion and access to credit by those in the rural areas would boost real sector activities. “Nigeria is also confronted with a number of uncertaint­ies in 2019. The threats around the general elections, the national minimum wage legislatio­ns, strikes by unions seeking improved working conditions, the continuous insurgenci­es in parts of the country, impacts of climate change manifestin­g in increased incidence of flooding, desertific­ation and lower agricultur­al productivi­ties, oil market volatiliti­es are additional challenges that will have impacts on the economic landscape in 2019,” he said.

 ??  ?? CBN Governor, Godwin Emefiele
CBN Governor, Godwin Emefiele

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