By Babajide Komolafe & Elizabeth Adegbesan
Three banks failed to meet the 30 percent liquidity ratio requirement of the Central Bank of Nigeria, CBN, even as investigations revealed prevalence of major foreign exchange malpractices in the banking industry.
The CBN disclosed this in its 2018 half year, H1’18, economic review released yesterday which indicated slight improvements in the banks’ financial health buoyed by sustained recovery in macroeconomic conditions, as reflected by the 1.9 percent and 1.5 percent Gross Domestic Product, GDP, growth rates recorded in the first quarter (Q1’18) and second quarter (Q2’18) of the year respectively.
The CBN noted that while in the overall, the banking industry recorded improvement in capital adequacy ratio, liquidity ratio and asset quality (non-performing loans ratio), three banks, however, failed to meet the 30 percent minimum liquidity ratio requirement of the apex bank. It did not mention the names of the affected banks.
The report stated: “The health of banks improved in the review period, following the sustained recovery in macroeconomic conditions, including declining inflation, stable exchange rate and gradual upswing in the real economy.
“At end-June 2018, the industry average capital adequacy ratio (CAR) was 12.08 per cent, compared with 10.23 per cent and 11.51 per cent at end-December 2017 and end-June 2017, respectively. The development reflected the increase in banks’ total qualifying capital.
“The industry threshold, however, remained at 15.0 per cent for banks with international authorisation and 10.0 per cent for banks with either national or regional authorisation.
“Asset quality of the banking industry, measured by the ratio of non-performing loans to total loans (NPL ratio) fell to 12.45 per cent at end-June 2018, compared with 14.80 per cent and 15.02 per cent at end-December 2017 and end-June 2017, respectively. At this level, the ratio, remained above the regulatory threshold of 5.0 per cent.
“The decrease in the NPL ratio reflected the effect of the favourable macroeconomic conditions and stricter prudential regulation. To further consolidate on the improvement, the CBN directed banks to intensify efforts at debt recovery, realisation of collateral for lost facilities and strengthening their risk management processes. Loan loss provision was 75.74 per cent at end-June 2018, as against 80.4 per cent in the corresponding period of 2017. “The industry liquidity ratio increased to 46.09 per cent at the end of the first half of 2018, from 45.8 per cent at end-June 2017, reflecting the rise in the stock of liquid assets held by banks. With the exception of three (3) commercial banks, all others met the minimum regulatory liquidity ratios of: 30.0 per cent for commercial banks; 20.0 per cent for merchant banks; and 10.0 per cent for non-interest banks, at end-June 2018.”
The improvement notwithstanding, examination of banks’ foreign exchange activities during the period revealed prevalence of malpractices, reflecting pressure on management to generate more foreign exchange revenues.
The report stated: “The bank conducted a review of foreign exchange operations of 26 banks (22 commercial and 4 merchant) in April 2018 to ascertain the level of compliance with extant foreign exchange regulations. The review covered foreign exchange activities for the period, April 1, 2017 to March 31, 2018.
“Major infractions observed included: non-repatriation of export proceeds within the stipulated time; dealing in high value foreign exchange transactions with multiple corporate customers yet to be on-boarded on the FMDQ Advised Trading and Surveillance System; and rendition of inaccurate returns. Others were non-compliance with approved net foreign currency trading position, foreign trade documentation lapses and general failure to comply with regulations”.