Despite Challenges, UBA Leads Banking Sector in CAR, Liquidity Ratio

Kayode Tokede

Despite heighten macro economic challenges, United Bank for Africa (UBA) leads Tier-1 and Tier-2 banks in Liquidity Ratio (LR) and Capital Adequacy Ratio (CAR) to maintain its soundness and resilient financial system, data collected by THISDAY has shown.

Specifically, UBA in its half year (H1) ended June 30, 2022 reported 63.70 per cent LR from 47.60 per cent reported in 2021 financial year, while its CAR increased to 25.10 per cent in H1 2022 from 24.90 per cent in   2021 Financial Year.

LR is used to measure a company’s capacity to pay off its short-term financial obligations with its current assets, while CAR is used to measure how much capital a bank has available, which is reported as a percentage of a bank’s risk-weighted credit exposures.

The CAR and the LR in the banking sector remained above prudential limits at 14.1 and 42.6 per cent, respectively in June 2022, according to the Central Bank of Nigeria (CBN).

Speaking with THISDAY on UBA’s CAR/ LR emerging as highest in the banking sector, the Vice President, Highcap Securities, Mr. David Adnori said that the statutory required LR for bank is 30 per cent, maintaining that for UBA to have a LR above Zenith, Access Holdings, among other Tier-1 banks is an interesting development in the banking sector.

He added that UBA’s CAR around 25.10 per cent showed its resilient for future expansion and increases its capacity to take on risk.

The Central Bank of Nigeria (CBN) required all banks to maintain LR of 30 per, while other banking groups with international authorisation and those that have been categorise as being Domestic Systemically Important Banks (D-SIBs) to maintain a minimum CAR of 15 per cent, while a minimum CAR of 10 per cent will be applicable to all other banks.

The Basel III standard is a voluntary global regulatory framework that addresses bank capital adequacy, stress testing, and market liquidity risk.

According to the CBN, the goal of the guidelines was to specify the minimum Liquidity Coverage Ratio (LCR) standards for reporting companies in the banking system.

Other Tier-1 banks that had LR that outperformed the SIBs requirements were: Zenith bank that reported a decline in LR to 60.50 per cent in H1 2022 from 71.20 per cent in 2021 FY, while Access Holdings announced 53.60 per cent LR in H1 2022 from 50.70 per cent in 2021.

In addition, GTCO’s LR closed at 38.85 per cent in H1 2022 from 38.26 per cent and well above the regulatory minimum requirement of 30 per cent as Fidelity Bank reported 47 per cent LR in H1 2022 from 40.40 per cent in 2021 FY.

“Despite the pressure from intense competition and need to cover for regulatory debits, the Group maintained average liquidity ratio of 39.44per cent during the Period under review, ”GTCO explained in a presentation to investors/analysts.

In terms of minimum CAR, the trend of individual CAR of banks listed on the Nigerian Exchange Limited has been a mixed bag in the period under review.

Other considered banks with CAR above the regulatory requirement are: Zenith Bank, GTCO, Access Holdings, FirstBank (Nigeria), Fidelity Bank, Union Bank of Nigeria, FCMB group, Stanbic IBTC Holdings, Sterling bank and Wema bank.

The distribution of qualifying capital between Tier 1 and Tier 11 capital by the Nigerian banking industry has been outperforming the BCBS recommendation in terms of minimum CAR.

Coming close to UBA was Access Holdings with 22.40 per cent CAR in H1 2022 from 24.50 per cent, while GTCO grew its CAR to 22.02 per cent in H1 2022 from 23.83 per cent reported in 2021FY.

According to GTCO in a presentation, “The Group continued to maintain strong capital positions with Full IFRS 9 impact CAR of 22.02 per cent; 702 basis points above the regulatory minimum of 15 per cent.  Tier 1 capital remained a very significant component of the Group’s CAR closing at 21.9 per cent representing 99.6 per cent of the Group’s Full IFRS 9 impact CAR of 22.02 per cent.

“The robust capital position is a plus to the Group as it provides the needed headroom required for future expansion and increases its capacity to take on risk.  The Group’s Capital has been sensitized for Basel III compliance and found robust enough to meet the requirements for additional capital provision for conservation and counter-cyclical buffers.”

Zenith Bank’s CAR closed flat at 21 per cent, while Firstbank (Nigeria) reported drop in CAR to 16 per cent as of June 30, 20212 from 17.40 per cent in 2021FY.

Union Bank of Nigeria and Stanbic IBTC led the other banking category with CAR between 19.80 per cent and 19.70 per cent while Fidelity bank closed H1 2022 with CAR of about 16 per cent.

Regulating banks based on their systemic importance to the financial system and applying higher minimum CAR reduce the possibility of insolvency in the financial system.

To achieve the required capital adequacy, the CBN demanded increasing the qualifying capital, strengthening the bank’s balance sheet, or shrinking the risk assets on the bank’s books.

The minimum paid-up share capital to be maintained for a national level banking license in Nigeria is N25 billion or any such amount that may be prescribed by the CBN, while for Regional Banking License, it is N10 billion and International Commercial Banking License is N50 billion.