H1 2023: UBA Outperforms GTCO, Others in Capital Adequacy, Liquidity Ratio

Kayode Tokede

Aside leading the banking sector in profitability as of half year ended June 30, 2023, United Bank for Africa (UBA) also outperformed other Tier-1 and Tier-2 banks in Capital Adequacy Ratio (CAR) and Liquidity Ratio (LR) to maintain soundness and resilient financial system, THISDAY investigation has revealed. 

Specifically, UBA in its H1 2023 reported 36.40 per cent CAR from 28.30 per cent reported in 2022 financial year and declared 71 per cent LR as of H1 2023 from 68.30 per cent reported in 2022 FY.

The Central Bank of Nigeria (CBN) has in recent years maintained LR in the banking sector at 30 per cent

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.

Recently, the CBN stated that the Financial Soundness Indicators (FSIs) in the banking system remain stable and strong adding, “The CAR stood at 11.2 per cent, and LR of 48.4 per cent, as at end June 2023.”

A former acting CBN governor, Mr. Folashodun Shonubi, attributed the 11.2 per cent CAR in June 2023 from 14.1 per cent to foreign exchange unification, stressing that the figure remains above the prudential requirement.

The apex bank 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.

GTCO was close to UBA in CAR, closing June 30, 2023 at 24.70 per cent from 24.08 per cent in 2022FY.

GTCO in a presentation to investors & analysts said, “ The Group continued to maintain strong capital positions with Full IFRS 9 impact CAR of 24.7 per cent (Bank:20.4 per cent); 970basisi points above the regulatory minimum of 15perr cent and 870basis points over if adjusted for one per cent loss absorbency ratio.”

According to the bank, “Tier 1 capital remained a very significant component of the Group’s CAR closing at 22.72per cent representing 91.9 per cent of the Group’s CAR of 24.7 per cent. The robust capital position provides the Group the needed headroom required for future expansion and risk taking.”

It explained further that the Group’s capital has also been sensitised for Basel III compliance at three levels of Naira devaluation: N750, N850 and N900/$1 and found robust enough to meet the requirements of additional capital buffers – conservation and counter-cyclical under Basel III and impact of the expect growth in the value of the FCY Risk weighted Assets of the Group Balance sheet.

On LR, GTCO closed June 30, 2023 at 37.50 per cent from 49.90 per cent reported in 2022 FY which above minimum 30 per cent requirement of CBN.

“Despite the pressure from competition and the need to cover for regulatory CRR debits, the Group maintained average liquidity ratio of 36.6per cent during the period under review, ”the bank added.

However, Zenith Bank followed by Access Holdings closed June 30, 2023 with CAR of 22p er cent and 18per cent, respectively.

According to THISDAY investigation, Zenith bank closed 2022FY with 19.80 per cent CAR, while Access Holdings declared CAR of about 20.20 per cent in 2022 FY.

In the period under review, Access Holdings said, “Strong capital position with CAR at 22 per cent. This is above the regulatory threshold of 15 per cent.  Tier 1 capital represents 75 per cent of total regulatory capital at N1.22trillion. Capital has undergone sensitivity and scenario assessments at various devaluation levels, and it is robust enough to satisfy the necessary capital requirements for the business.”

The bank added that LR closed at 50 per cent in H1 2023 from 39.5 per cent in 2022FY.

Another strong Tier-1 bank, First Bank of Nigeria, the banking subsidiary of FBN Holdings reported 16.50 per cent CAR as of June 30, 2023 from 16.80 per cent in 2022FY.

However, Stanbic IBTC   Holdings saw its CAR at 18 per cent as of June 30, 2023 from 21.20 per cent reported in 2022, while FCMB Group come close at 16.40 per cent as of June 30, 2023 from 16.20 per cent in 2022FY.

Among investigated banks by THISDAY, Wema Bank had the lowest CAR in the period under review.

According to Wema Bank, its CAR stood at 10.13 per cent and remains above the regulatory minimum of 10 per cent.

“Tier 1 capital represents 75 per cent of the Bank’s CAR with a ratio of 7.60 per cent. The Bank’s Capital has been sensitized for Basel III compliance and found robust enough to meet the requirements for additional capital for conservation and Counter-cyclical buffers, “Wema bank said.

The bank added that enhancing the capital position remains in focus and the management expected this to be concluded by the end of Q3 2023.

According to Wema Bank, its Basel III has been implemented fully to the extant of the regulatory requirement, stating that the bank successfully concluded its ICAAP submission to the regulators in April 2023.

“The required Basel III metrics to the regulators are submitted timely on monthly basis. The most common them include capital adequacy ratios, liquidity ratios etc. Basel II reporting is running concurrently with the Basel III reporting.

“The Enterprise Risk management division and Financial Reporting are spearheading reporting while Enterprise Risk Management division is responsible for monitoring and compliance of the required limits.

 “The Bank has continued to build capacity in the relevant team responsible for handling continuous monitoring, measuring and reporting by sending the relevant teams for training on regular basis, ”Wema Bank added.