Business Hilights
Tracking Nigeria's Headline Business News Online

Why CBN maintains sealed lips on 4 banks below minimum liquidity ratio

To avoid panic withdrawals capable of leading to confusion that will frustrate the recovery speed of the four banks, the Central bank of Nigeria (CBN), has kept the names of the four commercial banks operating below the minimum requirements in liquidity ratios. A top official of one of the leading new generation banks confided on Business Hilights on Thursday in a telephone interview.

Earlier, the International Monetary Fund (IMF) had urged Nigerian policymakers to quickly increase the capital of undercapitalised banks and put a time limit on regulatory forbearance after it said last month that four banks were under-capitalised.

The least regulatory liquidity ratio for Nigerian banks is 15 per cent and the affected banks are said to be operating with too many non-performing loans on their books.

It would be recalled that two members of the CBN’s Monetary Policy Committee (MPC) have said in statements on the bank’s website that the banks are currently under intense study.

The two members, Dr. Doyin Salami and Prof. Balami Dahiru Hassan, did not name the lenders, but said the four banks together were equivalent to at least one Systemically Important Bank.

According to Hassan, financial sector stress tests showed that the Capital Adequacy Ratios for the nation’s banking industry worsened to 11.51 per cent in June, from 12.81 per cent in April, as against a regulatory minimum of 15 per cent for banks with international licences.

The MPC member also noted that “The financial performance indicators showed that when the four outlier banks were removed, the CAR, NPLs ratio and the Liquidity Ratio are all above the prudential requirement”.

“The banking sector liquidity ratio showed that all DMBs registered above the minimum of 30 per cent Liquidity Ratio with the exception of four outlier banks. The stress test, therefore, shows that the Deposit Money Banks are less resilient to shocks.

Continuing, he averred that the NPLs stood at 15.07 per cent in June compared with the five per cent regulatory limit.

However, Salami, in his response noted that the ratio stood at 8.17 per cent when excluding the four lenders in question, stressing that “The Financial System Stability Report by the CBN staff highlights one of the biggest challenges with, which the central bank must grapple”.

“At slightly over 15.0 per cent, the portfolio of the NPLs as a proportion of the total loan book of banks, remains above the regulatory maximum and continues to rise. Whilst the CBN top officials continue to note that once the figure is discounted for the impact of ‘four outlier banks’, the NPL ratio drops to 8.17 per cent,” he added.