The Central Bank of Nigeria (CBN) has released its second-quarter report on the financial soundness indicators, revealing that some banks with international authorization are operating with a capital adequacy ratio below the regulatory threshold.
According to the report, the banking industry demonstrated resilience in the reviewed quarter, maintaining key financial soundness indicators within regulatory thresholds. However, the capital adequacy ratio for the banking system experienced a decline of 3.0 percentage points, dropping to 11.2 per cent compared to the 14.2 per cent recorded in the previous quarter.
The report highlighted that the ratio surpassed the 10.0 per cent benchmark for banks with national/regional authorization but fell below the 15.0 per cent threshold set for banks with international authorization. This decline was attributed to the decrease in total qualifying capital relative to the rise in risk-weighted assets. The depreciation of the naira exchange rate, a result of the adoption of a market-determined exchange rate policy by the CBN, contributed to this development.
In addition, the report disclosed that the asset quality of the banks, measured by the ratio of non-performing loans, slightly decreased by 0.4 percentage points to 4.1 per cent in the second quarter of 2023, compared to 4.5 per cent in the previous quarter. This decline reflects a sustained improvement in loan recoveries by banks and remains below the prudential benchmark of 5.0 per cent.
The industry liquidity ratio, a key indicator of banks’ ability to meet their obligations, experienced a significant increase of 10.9 percentage points, reaching 62.2 per cent in the review quarter, compared to 51.4 per cent in the preceding quarter. This ratio surpassed the minimum regulatory benchmark of 30.0 per cent, indicating the banks’ robust ability to meet their financial obligations.
