Banks capital adequacy fall below minimum requirement

  • The Guardian
  • 20/04/2017
Banks capital adequacy fall below minimum requirement
Flowing from a recent Central Bank of Nigeria (CBN) stress tests on banks operating in the country, seven deposit money banks are said to be operating below the statutory capital adequacy ratio (CAR), pegged as high as 15 per cent of a banks capital.

Although there is no official confirmation from the apex bank, which constantly reassures the banking public on the health of Nigerian banks, but authoritative sources in the regulatory bank, told The Guardian that stress test is a routine operation of the CBN, and once we discover anything untoward, we take adequate measures to check it.

CAR is the ratio of a banks capital to its risk, which the CBN uses to determine a banks capacity to absorb a reasonable amount of loss, as a means of protecting the depositors and promoting stability and efficiency in the financial systems.



As it is, the option of approaching the capital market may not help the affected banks to shore up their capital base, because of the prevailing illiquidity situation in the equities market, a development that makes investors to shun even high yield financial stocks.

But when contacted some of the banks deferred to comment on the issue till today, while others like Diamond Bank, confidently declared that its CAR is above 16.5 per cent, saying that its soon to be released audited accounts for 2016 and even first quarter 2017 are proof of its good standing.

Diamond Bank told The Guardian on the telephone, Yes, every bank needs funds but we dont need to approach the capital market because we have enough capital adequacy to drive our operations. Our bank is retail focused and we have a lot of liquidity to drive it.

Union Bank, which neither denied nor confirmed its CAR inadequacy, admitted that it planned to raise N50 billion capital later this year, as already indicated in its full year 2016 report, and a statement earlier issued in that regard.
  
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