Banks capital buffers remain above regulatory minimum

Most Nigerian banks have Capital Adequacy Ratios (CAR) which is within or above the limit set by regulators as at the third quarter of 2016.

CAR which serves as a buffer for absorbing loses helps regulators protect depositors from banks who lend aggressively and in doing so do not get back most of the money lent.

This is because when a bank makes large loan losses that wipe out its total equity, it may lead to an immediate bankruptcy thus making depositors lose their money.

Guaranty Trust Bank (GTB), Zenith Bank, United Bank for Africa (UBA) , Access Bank, Ecobank and First Bank of Nigeria (FBN) recorded CARs of 18.10 percent, 19.0 percent, 17.60 percent, 19.60 percent, 24.10 percent and 15.40 percent, respectively which is above the regulatory requirement of 15 percent.

These lenders are deemed Systematically Important Banks (SIB) by the central bank.

Fidelity Bank’s CAR declined to 16.80 percent from 18.70 percent the previous year. The bank said it has regulatory approval to adjust for excess non distributable reserve (NDR) that would increase its CAR to 18 percent by the end of the year.

Skye Bank, that had its management changed by the central bank, is planning to sell its overseas subsidiary to improve capital adequacy.

Sterling Bank is planning to issue a N27 billion Euro bond, as it aggressively seeks to bolster capital buffers.

While most lenders have capital buffers to withstand shocks, the macroeconomic headwinds caused by lower energy price, declining reserves and a severe dollar shortage remains a threat.

In view of the aforementioned challenges and in order to prevent a banking sector crisis of 2008-2009, the Apex bank, in 2014, ordered banks it considered too big to fail to bolster capital adequacy to 16 percent from 15 percent.

Analysts say the proposed move would help reinvigorate the economy and encourage lending.

For big banks, which the regulator classifies as having more than N1 trillion naira ($3.2 billion) of assets, CAR fell to 15.65 percent in June, still above the requirement of 15 percent, according to the central bank website.

 

BALA AUGIE