Nigeria deposit money banks (DMBs) with higher levels of bad debts are set to be pressured as the Central Bank of Nigeria revealed yesterday plans to introduced fresh capital rules in the country’s banking sector.
The CBN plans to introduce fresh capital rules in the second quarter of 2019. It is believed this will heap pressure on lenders already weighed down by bad loans.
In a mail response to Bloomberg the CBN explained that: “The new requirements will be stricter in terms of what funding qualifies as capital and will also require lenders to create “capital conservation” and “counter-cyclical” buffers.”
The CBN in 2016 delayed the enactment of new capital rules on the banking sector in the bid to avoid the possibility of a recession.
According to a report by the National Bureau of statistics (NBS) for the third quarter of 2018, non-performing loans to total gross loans (NPL/TGL) in the banking industry stood at 14.16 percent, 0.64 percent lower than 14.8 percent recorded in December 2017.
Nevertheless, compared to other African countries, aggregate NPL/TGL of Nigerian banks is the second highest, lagging Malawi. The move by the CBN is in a bid to shield the Nigeria banks “against shocks emanating locally and from abroad” by increasing the level of regulatory capital and the quality of the assets.
According to Bloomberg, “The regulator is aligning itself with a global accord known as Basel III three years after a contraction in Nigeria’s economy spurred authorities to delay the implementation of tougher capital rules.”
It also comes after policy makers in 2013 spurned some requirements drawn up by the Basel Committee on Banking Supervision.
Recall in 2018, the CBN introduced banks to a new accounting standard known as IFRS 9 last year to improve disclosure in the bid to force lenders to provide for both existing losses and future losses.
While the average capital adequacy ratio for the industry rose to 12.1 percent in June from 10.2 percent at the end of 2017, some banks said the transition shaved as much as 200 basis points off their capital bases.
According to the mail, the central bank plans to “apply a leverage ratio to supplement existing capital ratios” for lenders as well as “additional loss-absorbency requirements for domestic- systemically important banks.”
“Country and cross- border risk guidelines are being developed for the assessment of risks arising from across border operations of Nigerian banks,” it said.
