Caleb Ibe Reporting.........

Three ‘small banks’ in danger, says CBN after
stress test
A liquidity stress test conducted by the Central
Bank of Nigeria (CBN) has revealed that capital
position of ‘three small banks’ have fallen below
regulatory capital requirement.
The test, contained in the CBN Financial Stability
Report released yesterday, showed the Capital
Adequacy Ratios (CARs) of the affected banks
were below five per cent regulatory threshold.
The three banks are not among the domestic
systemically important banks (D-SIBs), it said.
The report, which measured the lenders’
positions as at June this year, showed that the
number of banks with CAR less than five per
cent also increased from zero to three from
December 31, 2014 to June 30, 2015. The CAR is
a ratio of a bank’s assets to its risks
According to CBN’s Director, Financial Policy and
Regulation Department, Kelvin Amugo, the
liquidity stress test was conducted using the
Implied Cash Flow Analysis (ICFA) and the
Maturity Mismatch/Rollover Risk approaches to
assess the resilience of the banking industry to
liquidity and funding shocks.
He said the ICFA approach assessed the ability
of the banking system to withstand unanticipated
substantial withdrawal of deposits, as well as
short-term wholesale and long-term funding over
a 5-day and cumulative 30-day periods, with
specific assumptions on the fire sale of assets.
The report said liquidity ratio (LR) of the Nigerian
banking industry decreased by 6.5 percentage
points to 39.3 per cent from the 45.8 per cent
December 2014 position. The decline in the LR
position was driven mainly by the large and
medium banks with 6.5 and 7.4 percentage
points decrease respectively from their
December 2014 LR position to 36.9 per cent and
45.5 per cent respectively. This decline may be
traced to the sustained tight monetary policy
stance of the CBN.
The test results revealed that the industry
liquidity ratio declined to 9.30 and 6.10 per cent,
from 39.3 per cent baseline position after the
five-day and cumulative 30-day shocks,
respectively. The result of the stress tests
indicated potential vulnerability to liquidity risk in
the event that these scenarios crystallized.
“Overall, there was an improvement in the
baseline CAR of the Nigerian banking industry at
end-June 2014 compared to the December 2014
position. The baseline CAR rose by 0.23
percentage point over the December 2014
position to 17.38 per cent at end-June 2015.
This was driven mainly by improvements in the
baseline CAR of the large banks which rose by
1.03 percentage points over their December 2014
position to 18.56 per cent at end-June 2015,” the
report said.
“Equally, the number of banks with CAR greater
than the 15 per cent prudential hurdle rate for
international banks increased from 13 at end-
December 2014 to 16 at end-June 2015.
However, the number of banks with CAR less
than five per cent also increased from zero to
three over the period”.
Commenting on the report, CBN Governor,
Godwin Emefiele, said it captures the headwinds
remain, given that oil exports from Iran and lower
global demand will further dampen oil prices,
thus portending continued decline in oil revenue
accruing to Nigeria.