Two new generation banks are technically bankrupt

Investigations showed that the Capital
Adequacy Ratios (CARs)
of these two
commercial banks fell below regulatory capital
requirement of 10 per cent, after the result of a
stress test conducted by the Central Bank of
Nigeria (CBN).
The solvency stress test, contained in the
Financial Stability Report, released on
Wednesday and signed by CBN Governor,
Godwin Emefiele, classified lenders into three
groups namely: large banks, those with assets
greater than or equal to N1 trillion; medium
banks with assets greater than or equal to N500
billion but less than N1trillion and small banks
with assets of less than N500 billion.
The CAR is a ratio of bank’s assets to its risks
and is 10 per cent for national bank, 15per cent
for banks with international subsidiaries and 16
per cent for systematically Important Banks
(SIBs).
The test result showed that one of the affected
banks had CAR of 1.29 per cent before the test,
and while two banks had 0.78 per cent and 8.2
per cent after the test, against required 10
percent requirement.
Besides, the stress test captured the nature of
individual bank’s balance sheet and macro-
prudential concerns using the bottom-up and
top-down approaches.
The exercise covered the 23 commercial and
merchant banks using the credit, liquidity,
interest, foreign exchange rates and foreign
exchange trading risks elements.
The report, which measured the lenders’
positions as at December last year, revealed
that overall, there was high risk through
unsecured interbank exposure as one bank’s
CAR was below the benchmark before the
shock while two banks failed to meet the CAR
benchmark after the shock.