CAR: CBN Extends Deadline for Systemically Important Banks


Obinna Chima

The Central Bank of Nigeria (CBN) has extended the deadline for the implementation of higher capital adequacy ratio (CAR) requirements for systemically important banks (SIBs), a report has shown.

The policy, which was to take effect from July 1, 2016, but has been deferred to an undisclosed date, stipulates the implementation of 16 per cent minimum CAR for SIBs.

The SIBs are First Bank of Nigeria Limited, Guaranty Trust Bank Plc (GTBank), Zenith Bank Plc, United Bank for Africa Plc (UBA), Access Bank Plc, Skye Bank Plc, Ecobank Nigeria and Diamond Bank Plc.

The eight financial institutions designated as SIBs by the central bank were required to hold more liquid assets and a liquidity ratio of 35 per cent. This meant the affected banks were expected to have a minimum liquidity ratio, which is five per cent above the 30 per cent requirement in the industry.

“We gathered from our meetings that implementation of the 16 per cent minimum CAR for systemically
important banks, scheduled to take effect from 1 July 2016, is likely to be delayed. We view this positively given the difficulties in boosting capitalisation levels in this environment.

“That said the CBN on 14 March, tightened CAR requirements – all intragroup placements will be assigned a minimum risk weight of 100 per cent from 20 per cent owing to perceived risks from such exposures,” the report by Renaissance Capital stated.

In addition, the report showed that on-going forex shortages have deteriorated over the past few months with the banks still estimating a win-ratio of forex bids at 7-10 per cent.
Despite the adjustment of petrol prices to reflect a NGN285/$1 exchange rate, the firm held the opinion that petrol scarcity issues are likely to continue as international oil companies (IoCs) are mostly not selling forex directly to the marketers, saying that “even if they were, forex supply gaps remain material.”

It also revealed that the CBN has given approval to Moneygram to execute inflow conversions and outflows at N240-264/$1. The move, it pointed out fans “the flames of the devaluation debate.”
“For the banks the status quo remains until there is guidance from the CBN. What could facilitate supply is a liberalisation of interbank pricing. From a technical perspective, banks’ share prices could rally post devaluation simply on the back of forex inflows; but from a fundamental perspective, we still see this fuelling another round of capital pressure and non-performing loans (NPLs) formation in the sector.

“Nigerian forex regulations do not recognise any forex market as ‘secondary market’, which makes it difficult to understand how forex sales at N285 /$1 are supposed to work given that the official and interbank rates remain fixed at N197/$1 and NGN199/$1, respectively, and the parallel market is about N340/$1,” it added.

The report revealed that discussions with some banks showed that the CBN was not carried along in the new petrol pricing changes. This, RenCap pointed out did not help, as IoC forex sales are often regulated and currently need to be transacted in a legally recognised market – interbank in this instance.

“Therefore, without a liberalisation of the interbank market by the CBN (probably via a two-tier exchange rate system or a devaluation), some banks consider the full practicality of this directive questionable.

“We gather from some banks that only one IoC sold forex under this window by directing the bank to allocate its forex sales to a specific marketer. Checking with the IoC, it has only done this twice; it now has concerns as to why it should keep selling forex to a marketing company at N199/$1 when the petrol pricing template has changed to N285.

“We understand most of the other IoCs never really partook in this window as they would typically only sell forex sufficient enough to meet their naira obligations. As they have scaled down domestic operations besides the decline in oil prices, IoC forex sales have consequently declined,” it added.