BY MICHAEL EBOH

Global rating agency, Standard and Poor’s Rating Services, yesterday, said Nigerian bank’s capital base is lower than widely publicized, saying that it views the banks capital as moderate or adequate.

The rating agency, in a report titled, ‘Why Standard & Poor’s Calculation Of Capitalization For Nigerian Banks Is Lower Than The Regulatory Measure,’ published yesterday, said, “Nigerian banks often view their capitalization as either strong or adequate. In contrast, Standard & Poor’s Ratings Services views their capitalization as ‘moderate’ or ‘adequate,’ under its criteria.”

George Maisey, Credit Analyst, Standard & Poor’s, said in measuring the capitalization of Nigerian banks, S&P, takes into account their high exposure to lower-rated government debt, and to corporate debt on and off the balance sheet compared with retail debt.

He said the banks believe their capital base to be stronger than it really is because of what the banks believed is surplus capital, which is over the minimum regulatory Capital Adequacy Ratio, CAR, stipulated by the Central Bank of Nigeria, CBN.

He, however, said, “It should be noted that our capital ratios for all of the banks that we rate globally are usually lower than regulatory CARs. That’s mainly because our measure is adjusted for the risks that banks face — either because of the riskiness of the banking industry where they operate or of the exposures they hold.”

Continuing, Maisey said the average CAR for the eight largest Nigerian banks by asset size, according to publicly available financial statements, was 21.1 per cent, versus the 15 per cent regulatory minimum for banks with international operations.

He said, “However, we calculate that capitalization was a much lower 6.2 per cent, on December 31, 2011, according to our globally comparable risk-adjusted capital framework.

“This is about one percentage point lower than our 7.4 per cent risk-adjusted capital (RAC) ratio we estimated for the 100 largest banks we rate across the globe according to data as of September 30, 2011.”

Maisey said the rating agency expects stability in the capital base of the banks, going forward, adding that strong profitability is likely to generate internal capital at the same speed as loan growth.

“In rating a bank, we incorporate our projected RAC ratio into our assessment of capital and earnings. We combine analysis of these two areas together to form one of the four bank-specific rating factors that determine an institution’s stand-alone credit profile (SACP).

“Our assessment of capital and earnings for the Nigerian banks we rate is either “moderate” or “adequate” and is therefore neutral for the ratings, under our criteria,” He said.