*CBN’s
stress test shows gives negative signal
The Capital
Adequacy Ratios (CARs) of three big banks have fallen below regulatory capital
requirement, the result of stress test conducted by the Central Bank of Nigeria
(CBN) on the status of the banking system has shown.
Overall, the
result of the solvency stress test indicated the potential for high
contagion risk through
unsecured interbank exposure
as three banks including two
Systemically Important Banks failed CAR after a 100 per cent default shock.
The test,
contained in the Financial Stability Report, released yesterday by the CBN
governor, Godwin Emefiele, classified lenders into three groups: large banks,
those with assets greater than or equal to N1 trillion; medium banks with
assets greater than or equal to N500 billion but less than N1 trillion and
small banks with assets of less than N500 billion.
The CAR is a
ratio of bank’s assets to its risks and is 10 per cent for national banks and
15 per cent for banks with international subsidiaries and 16 per cent for
Systematically Important Banks (SIBs). It said the baseline CAR for the banking
industry, large, medium, and small banks stood at 14.78, 15.47, 12.75 and 3.14
per cent, respectively.
The banking
industry stress test was carried
out at end-December
last year, covering 23
commercial and merchant banks, and
evaluated the resilience
of the banks
to credit, liquidity,
interest rate and contagion
risks.
The tests,
which measured the lenders’ positions as at December last year, were conducted
using the Implied Cash
Flow Analysis (ICFA)
and Maturity
Mismatch/Rollover Risk methods,
to assess the
resilience of individual
banks and the banking industry to
both liquidity and funding shocks.
It revealed
that after a one-day run, the liquidity ratio for the industry would decline to
30.2 per cent from the 44.4 per cent pre -shock position and, to 9.73 per cent
and 6.76 per cent after a five-day and cumulative 30-day
run, respectively.
Similarly, a five-day
and cumulative 30-day run on the
banking industry would
result in liquidity
shortfalls of N2.1 trillion and
N2.3 trillion, respectively.
The test
showed that commercial banks experienced deterioration in assets quality at end-December 2016. The ratio of
non-performing loans (NPLs) to gross loans deteriorated by 2.3 and 8.7
percentage points to 14 per cent
compared with the levels at end-June 2016 and end-December 2015,
respectively.
The
deterioration in asset quality, the report said, was largely attributed to the
rising inflationary trend, negative Gross Domestic Product (GDP) growth, and
the depreciation of the naira.
The CBN said
economic crisis adversely impacted borrowers, resulting in rising NPLs which required
additional provisioning by banks,
thereby reducing the banks’ CAR.
CBN, please
make sure our money in the banks are safe.
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