Bad Loans: CBN Considers Tougher Capital Rules for Banks

January 27, 2019
Bad Loans: CBN Considers Tougher Capital Rules for Banks

By Dipo Olowookere

The Central Bank of Nigeria (CBN) is considering coming out with measures that will compel financial institutions operating in the country to drastically reduce their non-performing loans.

A report by Bloomberg last week said the apex bank is already planning to introduce fresh capital rules aimed to achieve this goal.

The guidelines, which would be stricter than the present ones, should be released in the second quarter of this year.

The sole aim is to protect the banks against local and global shocks. The central bank will hope to raise the level of regulatory capital and the quality of the assets. The lenders may be asked to create “capital conservation” and “counter-cyclical” buffers.

According to Bloomberg, CBN is aligning itself with a global accord known as Basel III three years after a contraction in Nigeria’s economy spurred authorities to delay the implementation of tougher capital rules. It also comes after policy makers in 2013 spurned some requirements drawn up by the Basel Committee on Banking Supervision.

Nigerian authorities migrated banks to a new accounting standard known as IFRS 9 last year to improve disclosure by forcing lenders to provide for existing losses as well as those that might occur in the future. While the average capital-adequacy ratio for the industry rose to 12.1 percent in June from 10.2 percent at the end of 2017, some banks said the transition shaved as much as 200 basis points off their capital bases.

Lenders are struggling to contend with non-performing loans equal to 12.5 percent of total credit. While these have improved from almost 15 percent in 2017, many small- to medium-sized banks are battling to raise capital, leading to at least one takeover deal; that of Diamond Bank Plc by Access Bank Plc.

The central bank plans to “apply a leverage ratio to supplement existing capital ratios” for lenders as well as “additional loss-absorbency requirements for domestic-systemically important banks,” it said.

“Country and cross-border risk guidelines are being developed for the assessment of risks arising from across border operations of Nigerian banks,” it said.

Modupe Gbadeyanka

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

Leave a Reply

Two Access Bank Staff Defraud Dasuki £100k
Previous Story

Two Access Bank Staff Defraud Dasuki £100k

Nigeria-Russia Trade Volume Rises 100% in 3 Years to $600m
Next Story

Nigeria-Russia Trade Volume Rises 100% in 3 Years to $600m

Latest from Banking