Financial institutions’ Capital Adequacy Ratio (CAR) drops to 11.2%, below 15% threshold

Eight commercial banks have fallen short of the Capital Adequacy Ratio (CAR) required for international authorisation, the stress test conducted by the Central Bank of Nigeria (CBN) has shown.

The affected banks have been put under pressure to raise their capital base to bridge the gap, which was brought about by the depreciation of the naira against the dollar and other foreign currencies

Through its 2021 guidelines, the CBN had mandated the Deposit Money Banks to maintain a prudential CAR of 10 per cent for national and regional banks.

Those with international authorisation were instructed to uphold a 15 per cent regulatory CAR.

However, the CBN report showed a decline in the banking system’s CAR, dropping to 11.2 per cent, which is 3.0 per cent short.

This is below the 15.0 per cent threshold set for banks with international authorisation.

The decline in the banks’ CAR was attributed to a decrease in total qualifying capital relative to increased risk-weighted assets due to the naira’s depreciation following the adoption of a market-determined exchange rate policy. This reflects the challenges faced by these institutions.

The banks were scrutinised based on their capital strength and risk profile, a crucial measure of a bank’s financial stability.

The stress test was conducted to assess the banks’ financial health and their ability to withstand adverse economic conditions and shocks.

Specifically, the test focused on the CAR, which measures the proportion of a bank’s capital to its risk-weighted assets and is used to determine the bank’s financial stability.

The CAR is a regulatory requirement set by the CBN and each bank is expected to maintain a minimum level of capital to ensure their ability to absorb potential losses.

Based on the results of the stress test, it was discovered that among the affected banks with international authorisation, their capital adequacy ratio was lower than the minimum regulatory requirement set by the CBN.

This implies that these banks may have insufficient capital to meet potential losses during challenging economic conditions, which could potentially impact their overall financial stability.

The CBN’s revelation of the banks’ CAR falling below the minimum regulatory requirement emphasises the need for appropriate measures to be taken to address this issue.

It could prompt regulatory action, such as requiring the affected banks to raise additional capital or implement strategies to strengthen their financial position to mitigate any potential risks to the banking sector and the economy.

The depreciation, stemming from the CBN’s managed float of the exchange rate in June 2023, significantly impacted banks, leading to substantial foreign exchange losses.

It also affected the required capital for international, national, and regional banks.

Speaking penultimate Friday at the annual dinner of the Chartered Institute of Bankers of Nigeria, CBN Governor Olayemi Cardoso highlighted plans to introduce new capital requirements for banks.

He said: “Nigeria’s financial sector has demonstrated resilience in 2023, with key indicators of financial soundness largely meeting regulatory benchmarks.

“Stress tests conducted on the banking industry also indicate its strength under mild-to-moderate scenarios of sustained economic and financial stress, although there is room for further strengthening and enhancing resilience to shocks.

“Therefore, there is still much work to be done in fortifying the industry for future challenges, a topic that I will delve into later in my address.

“It is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy.

“It is not just about the stability of the financial system in the present moment, as we have already established that the current assessment shows stability.

“However, we need to ask ourselves: Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future? In my opinion, the answer is ‘No!’ unless we take action.

“Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital.”

The report also outlined a positive trend in banks’ asset quality, with a marginal decrease in Non-Performing Loans (NPLs) from 4.5 per cent to 4.1 per cent in the second quarter of 2023, reflecting improvement in loan recoveries and surpassing the prudential benchmark of 5.0 per cent.

Furthermore, the Industry Liquidity Ratio (LR) witnessed a significant rise, reaching 62.2 per cent in the review quarter, surpassing the minimum regulatory benchmark of 30.0 per cent.

This upswing signifies the banks’ robust capacity to fulfil their financial obligations.

The CBN’s disclosures underscored the pivotal need for banking institutions, particularly those with international authorisation, to bolster their capital adequacy and navigate the evolving economic landscape.

https://thenationonlineng.net/banks-fail-cbns-stress-test-on-foreign-operations-2/

There was a country

how did Nigeria became a country.

Useless and propaganda news
Everywhere different agencies are on media propaganda to claim they are working
Most media station directors will be cashing out in this propaganda season

Now dem go charge customers for even opening of account

When we have clueless people managing the country this is what we get..

1. Pay more attention to Agriculture people must eat

2. Fix your port where people can export there goods within 2days

3. Fix your road

4. Investing in agriculture meaning employing youth to work with the plenty empty land in Nigeria that is wasting and been use as a hub for kidnapping.


Oga nigeria from ogun state express to Delta convert those land to farms

Nigeria would not be the same in the next 3 years.

Hmm

CBN, do the needful.

Are they Banks in the real sense of the word? Nigerian banks were the only ones in the world that were declaring profit in billions during the pandemic era when everywhere was shut down. That shows that they are parasitic in their operation. They do absolutely little to help the real economy.

All of dem na werey before na , na only charges dem sabi , theives .

People no gree see their hard earned money withdraw you dey talk stress test

Na frustration test you dey even give is currently😄

It's not their fault everyone is stressed right now.

APC has destroyed the banking system .

CBN is weak and are only looking for a fall guy to smear their shit on.

Even to strategically exercise monetary policy is rocket science to them. Tufiakwa!

Illiterates will take over this thread

What Ebola Thimbulu the fóölish yeroóba messiah cannot destroy does not exist, skull miners from sadwest will come to wail under my comment soon, 1,2,3 goooo

the banks should use percentage of their profits to bridge the gap simple
they will declare billions of naira as profits and no capital base

These ones talking about $1 trillion economy in the future when they cannot even maintain and has almost buried the $500 billion economy handed to them

Memyselfu2009:
When we have clueless people managing the country this is what we get..

1. Pay more attention to Agriculture people must eat

2. Fix your port where people can export there goods within 2days

3. Fix your road

4. Investing in agriculture meaning employing youth to work with the plenty empty land in Nigeria that is wasting and been use as a hub for kidnapping.


Oga nigeria from ogun state express to Delta convert those land to farms

Nigeria would not be the same in the next 3 years.

100% agree with you.. there's no way government can take people out of poverty without food..once food becomes cheap+ good infrastructure n power.. country don develop be that..other things will naturally follow because people will invest in other areas like health and education including health insurance and student loan

Call for concerns

The only sector that won't fail any test currently in Nigeria is the corruption, kidnapping, banditry and terrorism sectors

All these news about bank this, bank that will indirectly affect negatively, the low trust Nigerians have in the banking sector and poor economy

We are all corrupt

We are all corrupt
Nigerians are not really sane or not sane

CBN itself that cannot meet its Forex obligations is the one testing banks. How??
This is hypocrisy, pure and simple!

Ok

What are their names?

Memyselfu2009:
When we have clueless people managing the country this is what we get..

1. Pay more attention to Agriculture people must eat

2. Fix your port where people can export there goods within 2days

3. Fix your road

4. Investing in agriculture meaning employing youth to work with the plenty empty land in Nigeria that is wasting and been use as a hub for kidnapping.


Oga nigeria from ogun state express to Delta convert those land to farms

Nigeria would not be the same in the next 3 years.

Only One farming season bro.

dre11:
Financial institutions’ Capital Adequacy Ratio (CAR) drops to 11.2%, below 15% threshold



https://thenationonlineng.net/banks-fail-cbns-stress-test-on-foreign-operations-2/

When the naira was being destroyed, did they not know it will adversely affect every sector including the banking industry? One jew man just came into office and decided to rock the boat instantly rather that gradual without taking into consideration adverse effects.