Banks: Capital Adequacy Ratio Improves to 15.26%

• Banks: Capital Adequacy Ratio Improves to 15.26%

The Central Bank of Nigeria (CBN) has disclosed that the Capital Adequacy Ratio (CAR) of commercial banks in Nigeria has increased from 10.23 per cent recorded in December 2017 to 15.26 per cent as of December 2018.

Mrs. Aishah Ahmad, CBN’s Deputy Governor, Financial System, disclosed this in her comment on the Monetary Policy Committee meeting for last month.

“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″, Ahmad said.

“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.”

She attributed the development to the recent promissory notes issued by the Federal Government to settle contractor debts, affirming that liquidity ratios, return on asset and return on equity remained healthy.

The slight improvement recorded in the non-performing loans (NPLs) will strengthen further, according to her.

Ahmad however was disappointed that the banks’ credit to the private sector remained low than required to support growth and stimulate economic productivity in key sectors.

The central bank requires that commercial banks with international subsidiaries keep CAR of 15 per cent, while banks without international subsidiaries must maintain CAR of 10 per cent. But the minimum requirement for the systemically important banks is 16 per cent.

CAR measures bank’s available capital expressed in percentage of its risk-weighted credit exposures.

She urged commercial banks to de-risk 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.