Nume Ekeghe
Following last month’s commencement of the new Basel III regulatory framework, it has emerged that Unity Bank Plc is currently in negative territory in terms of regulatory capital (CAR and CET1) ratios for banks with national license as at H1 2021.
With a -101.3 per cent in the red, the bank is hastily in need of capital injection to meet with the regulatory requirement.
The Basel III policy states that the capital buffers shall be in the form of Common Equity Tier 1 (CET1) and should be above the minimum CET1, Tier 1 and Total Capital Adequacy levels and that the capital buffers shall comprise the sum of the Capital Conservation Buffer (CCB1) of 1.0 per cent of TRWA; and a Countercyclical Capital Buffer (CCB2) of between 0 per cent to 2.5 per cent of Total Risk Weighted Asset (TRWA), as may be determined by the CBN based on the prevailing economic and industry circumstances.
Banks are expected to face greater disclosure requirements under the new regime to facilitate effective monitoring by the regulator and ultimately to engender transparency. This may however significantly increase regulatory costs for banks especially during initial implementation.
Data from Meristem Securities Limited’s Nigerian Banking Sector regulatory update titled, “A peek into the new Basel III guidelines,” showed majority of the banks are safe within the requirements but noted that Unity Bank is in despair.
It states: “Our estimates show that the majority of our coverage banks are in relatively good- standing per capital requirements. However, FBNH, UBN and Wema Bank are borderline compliant in terms of regulatory capital (CAR and CET1) ratios and thus need to shore up capital.
“Unity Bank is currently at a negative equity position and requires substantial capital injection to meet up with the regulatory requirements. We think that strength of capital adequacy will determine future competitiveness and thus, we generally expect banks to take necessary steps to boost regulatory capital regardless of current standing.”
A few banks have recently raised funding to support capital base. Access Bank Plc rasied $500 million via the issuance of five-year Eurobonds Tier II capital and perpetual bonds which qualifies as Additional Tier 1 capital.
Also, both United Bank for Africa Plc and Fidelity Bank Plc successfully issued Eurobonds qualifying as Tier II capital worth $300 million and $400 million respectively.
The report further cautioned that the implementation of Basel III would have an impact on banks’ earning in the future.
It stated: “The adoption of the Net Stable Funding Ratio (NSFR) will have a more drastic impact on the earning capacity of banks given the current funding structure in the industry.
“Thus, we think that CBN may be cautious about implementing it at this time. More so, we posit that the CBN is treading the cautious path followed by other countries, including Switzerland and the USA, which did not start implementation of the NSFR until recently in July 2021. Other countries that are yet to implement this requirement till date include the United Kingdom, which would commence implementation in 2022 and Japan.”
