By Obinna Chima
Following the successful recapitalisation of the rescued banks, the average Capital Adequacy Ratio (CAR) of all the banks operating in Nigeria has risen significantly to 17.12 per cent, the Central Bank of Nigeria (CBN) has said.
It revealed that the average lowest capital of all the banks in the country currently stands around the region of 10.69 per cent, while the highest stands at an average of 41.23 per cent.
Responding to questions during an exclusive interview with THISDAY in Abuja at the weekend, the Deputy Governor, Financial System Stability, CBN, Dr. Chiedu K. Moghalu, who made these revelations, also disclosed that the apex bank had fixed the end of 2012 as the deadline for the apex bank’s implementation of Basel 11 in the country as part of efforts to mitigate against any shock in the system.
A CBN report as at June 2010 had shown that the average CAR of the banks was below the stipulated minimum of 10 per cent. CAR is the percentage ratio of a bank’s capital to its assets (loans and investments), used as a measure of its financial strength and stability.
The ratio is used to protect depositors and promote the stability and efficiency of financial systems globally. In Nigeria, the banking industry’s stipulated minimum CAR is 10 per cent.
The last set of rescued banks – Union Bank of Nigeria Plc, Oceanic Bank Plc, Intercontinental Bank Plc, FinBank Plc and Equitorial Trust Bank Limited, all were successful recapitalised at the end of last month.
On the other hand, the proposed Basel 11 is a comprehensive international set of regulations aimed at enhancing the risk management of banks. It has three pillars which focuses on -minimum capital requirement; supervisory processes and market discipline which has to do with disclosure among others.
Moghalu maintained that the proposed introduction of Basel 11, was one of the major elements of the first pillar of the ongoing reform in the industry.
He explained: “We have taken a number of steps to make sure that the introduction of Basel 11 is achieved. We would be communicating with the industry in the near future on the steps that we have taken. But we have to do some internal work first. And part of that internal work was to set up an internal implementation committee that is chaired by myself and co-chaired by the managing director of the Nigeria Deposit Insurance Corporation (NDIC). That committee has a number of subsidiaries committees and a working group who have been working hard to identify the legislation and operational guidelines and to look at the various processes that needs to be put in place.
“ In march 2011, the CBN took some major steps in procuring support through consulting firms that would help was drive the work on Basel 11 going forward. We advertised in March, in line with the procurement Act for consultants to work with us on Basel 11 and Basel 111. We have received a number of applications after the advertisement in March and the evaluation team which comprises of CBN and NDIC have reviewed the application that we have received and a decision would be made very shortly on the expert group that would support us in going forward in this work. We expect that with the support of the expert that we are bringing to conduct an initial baseline survey of the Nigerian banking system in order to ascertain the level of implementation of Basel 11.”
According to him, the set of experts would also assess risk management framework and the infrastructure that had been put in place by individual banks. He also averred that they would address strength of internal control and the compliance function.
“We expect that by the end of 2012, all the banks, especially banks with national and international authorisation of a commercial banking licence are compliance with Basel 11.But, individually, a number of Nigerian banks have sought to be Basel two complaints. But what we are trying to do is to make sure that the standard now applies across the whole industry and as a regulator. We want to ensure that this becomes a constant aspect of our risk based supervision.
“The effective adoption and implementation of Basel II by Nigerian banks is especially important because it goes beyond Basel I's narrow emphasis on credit risk to focus on how banks deal with operational and market risks. In a nutshell, the Basel II capital accord aligns the management of banking risks with capital requirements. This approach will certainly enhance the quality of our banks, which is a cardinal pillar of the CBN reform program. Basel III, which is a response to the recent global financial crisis and will be implemented between 2013 and 2019, raises the level, quality and consistency of bank capital,” he explained further.
He added: “Basically, Basel III requires important global banks to hold core Tier I capital of a minimum of 7 per cent plus an additional buffer of 2.5 per cent of core tier one capital in order to counter macro shocks from economic cycles. It is important to note that some Nigerian banks are already operating above the capital thresholds established by Basel III, but there needs to be a more uniform approach to bank capital and risk management, especially by banks with national and international authorisations."
He also said that most banks were already repositioning their operations to enable them take advantage of opportunities in retail segment of the industry.
“The high segment of the market tends to be exposed to macro-shocks. So, if you are targeting only oil companies or multinationals, development in the international economy can easily affect you. And that was what happened in the past. Risk concentrations are to be avoided,” he said.
In a related development, reliable sources disclosed to THISDAY yesterday that the emergency meeting of the CBN’s Monetary Policy Committee (MPC) which holds in Abuja today (Monday), would among other things enable the body take a decision on the devaluation of the Naira.
The MPC which has operational independence on monetary policy in the country meets every two months. Its last meeting was in September.
Following the dwindling performance of the Naira against the United States dollar in recent times, the CBN Governor, Mallam Sanusi Lamido Sanusi, had said that the local currency could be allowed to devalue if oil prices and foreign exchange (forex) reserves continue to fall.
FSDH Securities Limited had in its weekly report at the weekend, predicted that “The CBN may announce a devaluation measure on Monday.”