Bank’s 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 bank’s 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 bank’s capital to its risk, which the CBN uses to determine a bank’s capacity to absorb a reasonable amount of loss, as a means of protecting the depositors and promoting stability and efficiency in the financial systems.
Already, some banks are issuing statements to reassure their customers on their capital adequacies, thus fueling anxiety over those who fall short. The Nigerian Deposit Insurance Corporation (NDIC), once explained that Nigerian banks CAR needed to be as high as it is compared to other climes because of its peculiar economic realities, to enable it withstand sudden environmental shocks.
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 bank’s 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 don’t 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.