Ecobank Transnational Incorporation has injected $64 million into its Nigerian unit in a bid to raise its capital ratio above the central bank’s regulatory minimum of 16 percent, the Africa-focused bank said on Monday. At the CBN official rate, this translate to about N20 billion at the time when capital base stands at N25 billion.
The move comes after a decision in November to adopt a different exchange rate for the naira to the one supported by the central bank affected its capital ratio. In the recent time, the Central Bank of Nigeria (CBN) disclosed that the Capital Adequacy Ratio (CAR) of commercial banks has improved from the 10.79 per cent as at August 2018, to 15.26 per cent as at December 2018.
The apex bank requires that banks with international subsidiaries maintain CAR of 15 per cent, while banks without international subsidiaries maintain CAR of 10 per cent. However, the minimum requirement for the systemically important banks is 16 per cent.
The CBN had warned that some deposit money banks are trading below benchmark in capital term. In the course of the financial year 2018, defunct Skye Bank Plc was taken over by Polaris Bank Limited due to inability to meet stress test and issues around its capital. Also, defunct Diamond Bank Plc was forced to merge with Access Bank plc on the back of heavy toxic assets in its book in addition to capital related issue.
Meanwhile, prior to the $64 million injection, the bank – which has operations in nearly 40 countries across the region – had a capital ratio of 16.5 percent. It said the ratio fell below the central bank minimum after a regulatory review.
“We would be injecting capital during this month and this would increase the ratio above the central bank regulatory minimum of 16 percent,” finance Chief Greg Davis said during a call with analysts.
The bank said the extra capital was approved in November, adding it was applying to its parent company, Ecobank Transnational Incorporated (ETI), to issue shares in April. Shares in the Lagos-listed bank dropped 3.4 percent on Monday to 12.75 naira, valuing the bank at 315.97 billion naira ($1.03 billion).
Ecobank, which counts South Africa’s Nedbank and Qatar National Bank as shareholders, last week said 2018 pretax profit grew 51 percent to $436 million. It did not declare a dividend on its 2018 income due to the need to boost capital.
It plans to make capital investments into subsidiaries where performance is dependent on scale and operate a minimum presence in other countries. It has said it would close branches to step up investments in digital platforms
The improved ratio in the banking sector was attributed to recent promissory notes issued by the federal government to settle contractor debts, adding that liquidity ratios, return on asset and return on equity remained robust. According to her, the marginal improvement in non-performing loans (NPLs) ratio was also expected to strengthen further.
Analysts are of the opinion that more capital injection would be necessary as the regulator plan to raise bar. It would be recalled that the CBN planned to introduce new capital rules in the second quarter of 2019 that would be stricter about what sort of funding qualifies as capital.
The rules, which will align the banking industry with the international accord known as Basel III, also require lenders to create buffers that should help them in the case of a crisis. According to industry data, the banking industry capital adequacy ratio increased considerably from 10.23 per cent in December 2017 to 15.26 per cent in December 2018. Some pundits are of the view that the improvement in capital buffers is a positive development to managing loans concentration that is already skewed to oil and gas sector.
