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CAR: CBN extends deadline for systemically important banks

By BusinessNews Staff on March 25, 2015

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), THISDAY learnt on Monday.

THISDAY also gathered that the banking sector regulator has also set a fresh deadline for banks that breached the minimum CAR under Basel II to submit their recapitalisation plans and execute them. Specifically, the CBN gave the affected banks a 15-month breather. They have been given three months, till 13 June 2015, to submit recapitalisation plans and till 30 June 2016 to implement them. The CBN’s letter also affirmed the regulator’s willingness to support any under-capitalised bank and added that it may require rapid remedial actions if adequate capitalisation is not restored.

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. 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.

As a result of the latest development, analysts at Renaissance Capital noted that the CBN’s fresh directive showed that a few banks (undisclosed) do not meet the minimum CAR of 10 per cent and 15 per cent for regional/national and international banks, respectively, under Basel II.

“In our view, this extension is a positive development for Nigerian banks as we have previously noted that the pace of implementation of Basel II (nine months) and other tighter capital requirements were rather speedy. That said, feedback from our recent international investor roadshow suggests that given the deteriorating Nigerian macro environment, significant capital-raising events could struggle to attract meaningful international investor participation.

“We also find international investors increasingly questioning the Nigerian banks’ ability to create value given constraining regulations and weakening macro fundamentals. We, however, think that the domestic investor pool or private equity capital could be supportive in some dire instances, drawn by depressed valuations and/or the long-term investment case for the sector. SIB 16% minimum CAR deadline extended to 1 July 2016,” RenCap stated in a report made available to THISDAY.

Continuing, it added: “In addition to the above, the implementation of the one per cent all-tier 1 capital buffer for SIBs, which raises their minimum total CAR to 16 per cent has been extended to 1 July 2016, from 1 March 2015.

Essentially, while the banks may today or indeed over the next 15 months comply with a 15 per cent minimum CAR, we think the banks need to give serious consideration near term to meeting a 16 per cent minimum CAR requirement and establishing a buffer to support future growth. Dividend pay-out and credit growth to fall but some tier 1 coming

“We expect capital levels and the sufficiency of this to remain an ongoing discourse for the Nigerian banks given the probable risks to earnings and book from material asset quality surprises, as well as continued naira depreciation. We maintain our view that dividend pay-outs and asset growth are likely to be cut near term to build the necessary capital buffers,” it added.

[ThisDay]

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