Seven banks account for 64 per cent of industry assets

The nation’s Deposit Money Banks (DMBs) is currently dominated by seven operators, with a cumulative asset base of 63.8 per cent, valued at N35.1 trillion, the latest Financial Stability Report of the Central Bank of Nigeria (CBN) has said.

The report, covering the second half of 2018, categorised the seven lenders as Domestic Systemically Important Banks (D-SIBs), based on the supervisory framework- size, interconnectedness, substitutability, and complexity.

Beside dominating the industry’s total assets, it also had 65.23 per cent of the industry total deposit of N21.73 trillion, as well as 66 per cent of the industry total loans of N15.34 trillion.

An examination conducted by the apex bank revealed that the D-SIBs were largely in compliance with the regulatory requirements, including capital adequacy and liquidity ratios.

For example, the average CAR for the D-SIBs stood at 19.82 per cent, while the liquidity ratio stood at 46.29 per cent, with an improvement in non-performing loans ratio from 11.31 per cent at end of June 2018, to 9.82 per cent at end of December 2018.

Meanwhile, an industry stress test was conducted to evaluate and determine the resilience of the banking industry to probable and adverse shocks, including credit, liquidity, interest rate and contagion risks for 21 commercial and five merchant banks, showed improved indices.

Specifically, the baseline Capital Adequacy Ratio (CAR) for the banking industry at end of December 2018 was 15.26 per cent, indicating 3.18 percentage points increase from the 12.08 per cent recorded at end of June 2018.

The baseline banking industry NPL ratio was 11.64 per cent at the end of December 2018, showing a slight improvement of 0.81 percentage points from the 12.45 per cent recorded at the end of June 2018.

CBN Governor, Godwin Emefiele, on the sidelines of the just concluded yearly meetings of the International Monetary Fund/World Bank Group, affirmed that the banking industry was stable and sound.

Contagion risk analysis through the interbank exposures and interconnectedness showed that six banks accounted for 82 per cent (N252 billion) of total placements and 86 per cent (N266 billion) of total takings.

On the other hand, four banks emerged top placers of funds at the interbank market within the period, valued at N190 billion, representing 71 per cent of available funds.

However, two banks were more central to the network of placements and takings, as they were exposed to at least seven counterparties each.

The stress test revealed that the banking industry could withstand a shock of up to 75 per cent increase in the industry NPLs as the CAR remained above 10 per cent, while the industry was vulnerable to shocks above 100 per cent increase in NPLs, as the industry CAR fell below 10 per cent.

The breakdown of banking industry total credit by sector showed that the oil and gas sector accounted for 30.29 per cent, while manufacturing, government, general commerce, finance and insurance, and others accounted for 14.53 per cent, 6.02 per cent, 7.40 per cent, 6.42 per cent and 35.34 per cent respectively, at end-December 2018.

The results of the stress test for default in exposure to the oil and gas sector showed that the banking industry could withstand up to 50 per cent default as the post-shock CAR remained at 10.24 per cent.