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Concerns as Some Banks Show Signs of Weakness

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A Central Bank of Nigeria (CBN) stress test has shown that only large banks will stay above the regulator’s capital adequacy ratio threshold if the non-performing loans levels of the Deposit Money Banks should rise by 50 per cent.

 

The results of the stress test were contained in the CBN’s latest Financial Stability Report posted on its website on Thurday.

 

According to the report, the end-June 2017 banking industry stress test, which covered 20 commercial and four merchant banks, was conducted to evaluate the resilience of the banks to credit, liquidity, interest rate and contagion risks (shocks).

 

The banking industry was categorised into large banks (those with assets up to N1tn or above); medium banks (those with assets more than N500bn but less than N1tn); and small banks (those with assets up to N500bn or below).

 

The stress test results stated, “The stress test showed that only large banks could withstand a further deterioration of their NPLs by up to 50 per cent. However, none of the groups withstood the impact of the most severe shock of a 200 per cent increase in the NPLs as their post-shock CARs fell below the 10 per cent minimum prudential requirement.

 

“The impact of the severe shocks on the banking industry, large, medium and small banks will result in significant solvency shortfall of 15.21, 9.78, 93.42 and 17.53 percentage points from the regulatory minimum of 10 per cent CAR, amounting to N2.77tn, N1.54tn, N0.98tn and N0.25tn, respectively.”

 

According to the CBN report, the average baseline Capital Adequacy Ratios for the banking industry, large, medium and small banks at the end of June 2017 stood at 11.51, 13.13, -6.71 and 13.54 per cent, respectively.

 

These represented a decline of 3.27, 2.34 and 19.46 percentage points for the banking industry, large and medium banks, respectively from the position as at end-December 2016.

 

However, the small banks group grew by 10.40 percentage points from 3.14 to 13.54 per cent

 

The CBN said the decline in the CARs was attributable to the challenges in the oil and gas sector coupled with the slow recovery in the domestic economy, which resulted to a rise in the NPLs and capital deterioration.

 

In the sectoral credit concentration risk stress test, the breakdown of banking industry’s total credit by sector showed that, oil and gas sector accounted for 28.83 per cent of the industry credit, while manufacturing, general, information and communications, government and others accounted for 13.76, 8.82, 4.94, 8.53 and 35.12 per cent, respectively at end-December 2016.

 

The report added, “The results of the stress test of default in exposure to oil and gas sector showed that the banking industry and peered groups, with the exception of medium banks, withstood up to 20 per cent default as their post-shock CARs remained above 10.00 per cent – industry (10.74 per cent), large banks (12.30 per cent) and small banks (13.34 per cent).

 

“Under a more severe shock of 50 per cent default, only small banks had CARs above 10.00 per cent (12.30 per cent). This showed that banking industry, large and medium banks were more exposed to the credit risk in the oil and gas sector than the small banks.”

 

The CBN liquidity stress test showed that after a one-day run, the liquidity ratio of the industry declined to 31.5 per cent from the 48.1 per cent pre-shock position, and to 11.8 and 7.9 per cent after a five-day and cumulative 30-day run, respectively.

 

According to the report, the asset quality of commercial banks declined in the first half of 2017.

 

The ratio of the NPLs to gross loans increased by 2.2 and 4.3 percentage points to 15.0 per cent at end-June 2017 compared with the levels at end-December 2016 and end-June 2016, respectively.

 

In his reaction under the Governor’s Statement on the FSR, the CBN Governor, Godwin Emefiele, said, “Reflecting the recession in the first half of 2017, there was noticeable deterioration in banks’ loan portfolios, especially exposures to the oil and gas sector and foreign currency denominated credit.

 

“To maintain financial system stability, efforts have been intensified to proactively engage operators to effectively manage the associated risks. Also, a framework for the establishment of private asset restructuring companies to acquire non-performing loans from banks and other financial institutions will be released in due course.”

 

The Deputy CBN Governor, Financial System Stability, Dr. Joseph Nnanna, stated that the regulatory attention was currently focused on ensuring an improvement in the quality of banks’ assets as well as ensuring that the banks contribute effectively to the real sector.

 

“The disruptions experienced in the economy with declining oil prices and government revenue resulted in an increase in the non-performing loans in the banking industry. The CBN will continue to monitor developments and initiate measures to limit contagion and ensure that financial institutions remain safe and sound,” he added.

 

The results of the CBN’s stress test were in line with the Article IV Consultation report by the International Monetary Fund, which highlighted the risks the banking sector faced, particularly with regards to solvency ratios of “four small and medium-sized undercapitalised banks,” Afrinvest, a Nigeria-based investment and research firm, said in a research note.

 

It noted that some of the “small and medium-sized banks are kept afloat through continuous recourse to the CBN’s lending facilities”

 

The IMF report stated that banks needed to raise their capital buffers hence, the CBN’s directive on dividend payment was a welcome development, while also calling for a broad review of asset quality to unmask potential capital needs.

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E-Financial

Global Heists on ATM Machines Imminent- FBI

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America’s Federal Bureau of Investigation (FBI) has warned banks in Nigeria and others across the globe that criminals are gearing up to execute a global bank heist in the coming days.

 

In a recent confidential alert FBI told international banks that criminals are plotting a concerted global malware attack on cash machines in the next few days.

 

The FBI issued a warning about a highly choreographed fraud scheme known as an ATM “jackpotting”, or ATM cash-out,” in which crooks hack a bank or payment card processor and use cloned cards at cash machines around the world to take out millions in just a few minutes.

 

The alert said the agency had procured information indicating an attack was imminent and that it was likely an “unlimited operation,” which uses malware to exploit network access and get customers’ card information at a large scale.

Once the criminals get the card data, they create fraudulent copies using reusable magnetic strip cards (like gift cards) and hit the ATMs.

 

“Historic compromises have included small-to-medium size financial institutions, likely due to less robust implementation of cyber security controls, budgets, or third-party vendor vulnerabilities,” reads the confidential alert, which was sent to banks last Friday.

 

“The FBI expects the ubiquity of this activity to continue or possibly increase in the near future.”

 

The alert urges banks to review their security systems and use two-factor authentication with a physical or digital token.

 

Other tips include monitoring and limiting administrator and business accounts with the authority to modify typical fraud controls like maximum withdrawal amounts and number of daily ATM transactions.

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E-Financial

Oradian, ANMFIN Unveil New Cloud-based Microfinance Solution

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As part of their shared mission to boost financial inclusion throughout Nigeria, Oradian and the Association of Non-Bank Microfinance Institution of Nigeria (ANMFIN) have launched a strategic partnership.

Princess Adesola Ogunleye, the President of ANMFIN, commented on the partnership saying, “We are extremely pleased to partner with Oradian. Together we align our shared vision and leverage the success delivered to date.

The partnership will enable all of our MFIs to move to Oradian’s cloud-based solution, helping our members to save time and money through more efficient, digitised processes – no more manual input of data. We and our members are very excited to improve administrative process, reduce high operational costs and offer digital financial services across the country.”

Launching ANMFIN Cloud Express expands the range of solutions that Oradian offers in Nigeria. As stated by Antonio Separovic, CEO of Oradian, “Nigeria was Oradian’s first market when we started Oradian six years ago and we remain committed to solving the financial inclusion challenge here. This partnership is a long-term partnership that is an important step towards this goal”.

The partnership will enable ANMFIN to promote access to financial services for Nigerian clients on a larger scale by using ANMFIN Cloud Express, a core banking system specially built for ANMFIN and its microfinance institution (MFI) members.

ANMFIN Cloud Express, powered by Instafin, is a cloud-based toolset tailored to enable smaller Nigerian microfinance institutions (MFIs) to benefit from a cloud-based solution.

According to Oradian’s Programme Director for Africa Onyeka Adibeli, “ANMFIN Cloud Express enhances MFIs’ ability to manage all operations including client relationships, transactions, portfolio management and reporting in the same way that large banks do – but at a fraction of the cost.

We are removing the barriers that prevent MFIs from using the right technology to serve their clients and to strengthen their operations.”

With a cost and a system tailored for the needs of smaller MFIs, Oradian’s partnership with ANMFIN enables more financial institutions to take advantage of technology to become more efficient, grow and reach more unbanked individuals in rural communities.

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E-Financial

CBN Boosts Foreign Exchange with $210m

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The Central Bank of Nigeria has sustained its intervention in the inter-bank foreign exchange market by injecting 210 million dollars into the various segments of the market.

 

Mr Isaac Okorafor, Acting Director, Corporate Communications, CBN,  on Tuesday in Abuja, said the apex bank offered 100 million dollars as wholesale interventions and allocated 55 million dollars to Small and Medium Enterprises.

 

Okorafor said another 55 million dollars was allocated to customers requiring foreign exchange for business and personal travels, tuition or medical fees, among others.

 

The CBN spokesman said the the bank was pleased with the performance of the naira because it had continued to enjoy stability against the dollar and other major currencies of the world in recent times.

 

He reassured the public that the CBN would continue to intervene in the interbank foreign exchange market to ensure liquidity in the foreign exchange market and maintain stability.

 

Okoroafor reiterated, in a statement, that the steps taken by the CBN in foreign exchange management had resulted in further reduction in the country’s import bills and accretion to its foreign reserves.

 

It will be recalled that the CBN on Aug. 10, intervened in the Retail Secondary Market Intervention Sales to the tune of 327 million dollars in the agricultural and raw materials and 69 million Chinese Yuan in the spot and short-tenored forwards.

 

Meanwhile, the naira continued to maintain its strong stand against major currencies around the globe, exchanging for N360 to a dollar in the Bureau De Change segment of the market.

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