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Published On: Wed, Jan 22nd, 2014

Fresh Liquidity Crisis Rocks Banks

LAGOS JANUARY 22ND (URHOBOTODAY)-There are strong indications that some of the 23 banks in the country may be having cash crisis, according to the Central Bank of Nigeria (CBN) investigation.
A Capital Adequacy Ratio (CAR) audit of the banks by CBN showed that some have “high level of liquidity crisis”.

The report showed that only 16 banks have CAR above 15 per cent; five have CAR above 10 per cent, but less than 15 per cent. Also, an analysis of the report showed that a bank’s CAR is below 10 per cent but greater than five per cent. Another one’s CAR was below five per cent.
The report said the minimum ratio of capital to total risk-weighted assets shall remain 10 per cent for Regional and National Banks and International Banks, 15 per cent.
According to the CBN Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for 2012 -2013, the banks’lenders should maintain a higher level of capital commensurate with their risk profile.
The Financial Stability report showed that after a careful study of the liquidity stress test conducted on the banks at the end of June, last year, the CBN mandated them to carry out internal CAR audit at least once yearly to ascertain their liquidity positions. The results showed that the industry liquidity ratio fell to 16.7 and 13.3 per cent after the respective five-day and cumulative 30-day shocks were applied, from the pre-shock position of 67.8 per cent.
“The banking industry solvency stress test assessed the resilience of the industry based on historical worst case and hypothetical strained macroeconomic situations. The overall banking industry was resilient to liquidity shocks, though a few banks were found to be vulnerable.
“The diagnostic study earlier commissioned by the CBN to examine the Nigerian financial system, taking into account specific tools required in the light of international developments since the 2007 crisis, was completed in the period under review,” it said.
The report suggested the enhancement of existing supervisory tools and institutional arrangements based on three major components, namely: macro-prudential policy; micro-prudential policy, and crisis management, necessary for the achievement of financial stability in the country.
“Henceforth, banks are required to carry out their Internal Capital Adequacy Assessment Process (ICAAP) on an annual basis, as at December 31, and forward copies of the report to the CBN for review,” CBN Director Banking Supervision, Tokunbo Martins said.
According to her, the full adoption of Basel Accords will be executed by June but preliminary works would start this month. The Basel Accord is a financial analysis principle expected to give banks’ financials better credibility.
She said the policies specified approaches for quantifying the risk weighted assets for credit risk, market risk and operational risk for the purpose of determining regulatory capital.
According to her, the computations are meant to ensure that banks have sufficient high quality capital to support their risk taking activities. The lenders, she said, are also expected to establish effective risk management systems commensurate with their level of operations.
She said all banks and banking institutions are expected to adopt the basic approaches for the computation of capital requirements for credit risk, market risk and operational risk, adding that the adoption of the Standardised Approach for Operational Risk and other sophisticated approaches will however be subject to the approval of the apex bank.
“The guidance notes are applicable to all banks and banking groups licensed to operate in Nigeria and should be applied on a solo as well as a consolidated basis. The minimum capital requirement is retained at 10 per cent and 15 per cent for local and internationally active banks,” she said.
Source: Newmail

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