Banking Industry Capital Adequacy Ratio Slides –Report
For most industries, 2023 was a mixed bag of many things amidst a sustained rise in headline inflation, worsening exchange rate and unchartered economic policies. Likewise, the quality of Central Bank of Nigeria (CBN) regulatory policies deposit money banks were tested.
According to the apex bank report, the average capital adequacy ratio of the Nigerian banks slid in the first half of 2023 amidst tough development in the local economy. Dangote Reacts to EFCC Visit to Headquarters
Confirm there was an issue in the operating environment, Central Bank said in a report that Nigeria’s financial sector remained resilient, as key financial soundness indicators were within regulatory benchmarks but noted that asset quality declined. The CBN report noted that at the end of June 2023, the banking industry Capital Adequacy Ratio (CAR) fell to 11.2 per cent at the end of June 2023 from 13.8 per cent in 2022.
At the end of June 2022, the capital adequacy ratio was 14.1 per cent, the apex bank said in a report. According to the report, the slump was driven by reforms in the foreign exchange market, resulting in the revaluation of foreign exchange-denominated risk assets.
CBN said banks’ risk-weighted assets increased, which more than offset the rise in their total qualifying capital. The ratio, however, remained above the minimum regulatory benchmark of 10.0 per cent. Analysis of bank asset quality measured by the ratio of non-performing loans (NPLs) to gross loans stood at 4.1 per cent in June 2023, CBN said.
This represents a decline compared to 4.2 per cent reported in 2022, and 5.0 per cent at end-June 2022. The NPL ratio was within the 5.0 per cent prudential requirement set by the apex bank in its banking sector oversight function.
MarketForces Africa reported that there was strong credit migration as a result of rising default risks. Worsening macroeconomic performance affects Nigerian borrowers amidst a high-interest rate environment. Corporate performance dipped, while the naira lost weight.
More companies reported FX losses due to fluctuations in the exchange rate. Banks margin rose but there was reduced appetite for lending, analysts said in a chat with MarketForces Africa.
In the same period, the banking industry’s Liquidity Ratio (LR) rose by 9.2 percentage points to 62.2 per cent, compared with 53.0 per cent at the end of December 2022. The rise in liquidity ratio reflected an increase in the stock of liquid assets held by banks, particularly, government securities.
The liquidity ratio remained above the regulatory benchmark of 30.0 per cent. #Banking Industry Capital Adequacy Ratio Slides –Report
