In the minutes of the last Monetary Policy Committee (MPC) meeting released yesterday, two members of the committee dropped hints some banks may be facing operational challenges. The MPC is the body saddled with the function of setting interest rates in the country, and is a subset of the CBN.
Doyin Salami, one of the MPC members expressed worries that the non performing loans of banks was above regulatory limits and was on the rise. Combining the four fringe banks that were undercapitalized would equate to a Systematically Important Bank (SIB), and the failure of one of them could lead to a banking crisis.
However, I note that these “4 Outlier Banks” cumulate in size to at least 1 Systemically Important Bank (SIB). I take the view that since the failure of any of the SIBs is a source of concern, excluding these “4 Outlier Banks” does not adequately take cognisance of the contagion effect which they could trigger.
Balami Dahiru another MPC member in his remarks, also stated that four of the nation’s banks had liquidity ratios less than the 30% statutory requirements.
The banking sector Liquidity ratio showed that all DMB‟s registered above the minimum of 30% liquidity ratio with the exception of 4 outlier banks. The stress test therefore shows that the Deposit Money Banks (DMBs) are less resilient to shocks.
Liquidity ratios are the proportion of assets that can be converted into cash to meet obligations. Liquid assets include, cash, government securities and reserves with the central bank.
The apex bank may be managing the situation quietly
Though the affected banks were not stated, the Central Bank of Nigeria (CBN) had in the last one year intervened and offered support for several banks. The CBN last year appointed an interim management for Skye bank, and has injected over N100 billion into the bank. Unity bank has also been propped up by the CBN, with funds running into billions of Naira. Union bank, yesterday announced the opening of a N50 billion rights issue. A greater proportion of the funds will be applied to boosting the bank’s capitalization. Diamond bank, had also signalled intentions of selling non core assets to boost its capital base.The CBN may have taken these steps quietly, in order to prevent a run on the affected banks.