Four Banks Trading Below Minimum Liquidity Ratio – MPC Members

• Four Banks Trading Below Minimum Liquidity Ratio

Four commercial banks in the country are operating with too many non-performing loans on their books and with liquidity ratios below the minimum requirement, two members of the Central Bank of Nigeria’s Monetary Policy Committee have said in statements on the bank’s website.

The two MPC 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.

Their statements were part of those of eight members of the MPC published late on Tuesday.

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.

He said, “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.”

Hassan stated that the NPLs stood at 15.07 per cent in June compared with the five per cent regulatory limit.

Salami, on his part, said the ratio stood at 8.17 per cent when excluding the four lenders in question.

He stated, “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 staff 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.”

The International Monetary Fund 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.

Union Bank of Nigeria Plc on Wednesday started a N50bn share sale to existing shareholders to enhance its regulatory and working capital.

A number of mid-size banks are seeking to raise fresh capital but the economic challenges facing the country may have delayed their plans.

Salami told our correspondent in a telephone chat that his MPC statements were things he stood by and believed in.

Asked if he had additional explanation, he said, “I don’t believe in stating half-truths. If you have read my statement in the past two years or more, you would have seen that.”

Reacting to the development, the Managing Director of Afrinvest Securities, Mr. Ayodeji Ebo, said 2016 was a very tough year for the banking sector and this led to increased NPLs in the banks’ books.

He said the economic challenges led to default in loan obligations by many companies.

These, he added, impacted the liquid assets of many banks, leading to low liquidity ratio and high NPLs.

In its latest report titled, ‘Nigerian banks: Survival of the fittest’, Renaissance Capital, an investment bank, said, “We believe that the focus for the banks that have struggled in this environment is to clean up their loan books and strengthen their capital positions.

“In our view, the biggest risk to both the NPL clean-up process and capital is the currency, as most of the banks continue to use the official rate (N305/$) to market their foreign currency exposures.

“We acknowledge that current market valuations remain depressed for the tier-2 banks, although the year-to-date share price increases and the improved macro outlook should make these banks more willing to engage in discussions around a capital raise. This, in our view, will drag out the prospect of an RoE recovery.

“For the entire banking sector, we believe that there is a risk to NIMs in FY18 given the scope for monetary policy easing. We expect that general business activity will also start to slow down in 2H18, ahead of the 2019 general elections. All of these factors could contribute to a delayed recovery for some of the banks.”

Ebo also expressed optimism that following the exit from recession, many banks would record improvement in their loan books before the end of the financial year.

Some economic analysts said low liquidity ratios in the four banks at the end of the second quarter might be corrected by the end of the third quarter.