By Blaise Udunze
The Central Bank of Nigeria (CBN) has disclosed that the non-performing loan (NPL) ratio of the banking industry rose to N649.63 billion as the capital adequacy ratio has weakened.
This was contained in the apex bank’s financial stability report for the period ended December 2015.
The apex bank in the report released yesterday said “ratio of regulatory capital to risk weighted assets stood at 17.5 per cent as at December 2015, showing a marginal increase of 0.1 percentage point below the level at June 2015.”
According to CBN, the decline was attributable to the fall in the level of banks’ general reserves in the second half of 2015. The level of non performing loan to capital in the banking industry, however, increased to 7.4 per cent by the end of 2015 from 5.5 per cent which it was at the end of June, 2015.
Non-performing loans, in the six-month period under review, rose by 3.36 per cent to N649.63 billion as at December, 31, 2015, from N628.54 billion as at June 2015. This reflected a 78.8 per cent increase from the N363.31 billion recorded at the end of December 2014. The NPL ratio rose to 4.86 per cent from 4.65 per cent.
While the NPL ratio remained within the prudential ceiling of five per cent, the CBN said it trended closer to the upper limit, with a few banks having NPL ratio above the regulatory maximum limit of five per cent.
The financial stability report, while stating that the banking industry and large banks’ resilience to credit risk was robust, stated that medium and small bank groups showed vulnerabilities to stimulated severe shocks of 200 per cent rise in NPLs as their CARs fell to 7.16 and 6.85 per cent respectively.
The report also revealed that no bank would have a CAR of up to 10 per cent if five of their biggest credit facilities become non performing as the CARs of the banking industry, large, medium and small banks deteriorated to 7.79, 8.73, 5.75 and 6.80 per cent respectively, from the baseline.
Also, a liquidity stress test of the industry showed that a five-day and cumulative 30-day run on the banking industry would result in a liquidity shortfall of N1.79 trillion and N1.93 trillion respectively. The test further revealed that 17 and 20 banks would record liquidity ratios below the prudential threshold of 30 per cent, following the five-day and cumulative 30-day runs respectively.
The banking industry and all peer banks showed resilience to foreign exchange rate risk as their capital only experienced slight deterioration after the impact of a 50 per cent exchange rate appreciation shock was induced on their net foreign assets.
Generally, the apex bank said the solvency stress tests suggested that the banking industry remained relatively resilient. Although some banks were sensitive to credit concentration and interest rate risks, these did not pose systemic threats to the industry.