Four Nigerian banks trade below minimum liquidity ratio, MPC members say

Four Nigerian banks are operating with too many non-performing loans and liquidity ratios below the minimum requirement, two members of the central bank Monetary Policy Committee, MPC, said in statements published on Tuesday.
The statements, released Tuesday by the apex bank, was part of the communique released after the MPC meeting held between July 24 and 25.
The statements, which were not made public until Tuesday, were issued by Doyin Salami and Dahiru Balami, among other members of the MPC.
Although Messers Salami and Balami did not name the affected banks, they said the four banks were jointly equivalent to at least one Systemically Important Bank, SIB.
Financial sector stress tests showed capital adequacy ratios for the industry in Nigeria worsened to 11.51 percent in June, from 12.81 percent in April, as against a regulatory minimum of 15 percent for lenders with international licenses.
Mr. Salami, in his statement, noted that the Financial System Stability Report by Bank Staff highlights one of the biggest challenges with which the Central Bank must grapple.
“At slightly over 15.0 per cent, the portfolio of Non-Performing Loans (NPLs) as a proportion of the total loan book of banks remains above the regulatory maximum and continues to rise,” he said.
“Whilst Bank Staff continue to note that once the figure is discounted for the impact of “4 Outlier Banks”, the NPL ratio drops to 8.17 per cent. In another set of circumstances, I may be tempted to suspend my judgement and support their position.
 
“However, I note that these “4 Outlier Banks” cumulate in size to at least 1 Systemically Important Bank (SIB). I take the view that since the failure of any of the SIBs is a source of concern, excluding these “4 Outlier Banks” does not adequately take cognisance of the contagion effect which they could trigger.”
Another member, Mr. Balami, said the financial performance indicators showed that when the four outlier banks were removed, capital adequacy, (NPLs) non-performing loan ratio as well as liquidity ratio are all above the prudential requirement.
“The critical question is how do we grow the economy with high rate of inflation as well as high rate of interest charged by the DMBs?” he asked.
Earlier in April, the International Monetary Fund, IMF, had reported that three Nigerian banks were undercapitlised with their capital adequacy ratio (CAR) far below the regulatory threshold.
Although the IMF did not mention the names of the banks in a document it released, it said as of December 2016, three banks (about 5 percent of assets), including one internationally active one, were undercapitalized (with CARs below 8 percent).
The financial institution had added that some weak banks in the country were frequent users of the CBN’s liquidity window.
It, thereafter, urged Nigerian authorities to quickly increase the capital of undercapitalized banks and put a time limit on regulatory forbearance.