The Central Bank of Nigeria, CBN says the Nigerian banking system is reasonably insulated to external shocks, owing to various Prudential guidelines put in place.
The Governor of the bank, Godwin Emefiele said this in Abuja, while commenting on the exposure of the country’s banking system to risks that may arise from the collapse Silicon Valley Bank.
He says, “ immediately this happened last week, we tasked our banking supervision department to ask for the bond portfolios, which is a main area of investment of banks, for Banks to earn some relatively high yield and the reports that came back to us was that there is no direct investment by Nigerian banks in SVB that will result in a loss of investment”.
He explained that the various Prudential guidelines put in place by the Apex bank insulates the sector from unnecessary risks.
“How are we sure that the Nigerian banking system is reasonably insulated to ensure that what happened in united states don’t happen in Nigeria? Nigeria, being one of the countries or few countries in the world, where we have cash reserve deposit requirement, what is cash deposit requirement, you deposit your money in a bank, a certain percentage of that deposit is held or sterilized at the Central Bank of Nigeria, to ensure that when there are kind of liquidity crisis that money is available for that bank to use to solve that liquidity problem, so that depositors don’t lose their money.
“We also have liquidity ratio which is an indices or specified liquid assets against total deposits of banks, and it’s either held in cash and bank vault or bank balances, or money at call treasury bills or OMO bills or different order liquid instruments, in Nigeria, our ratio is minimum of 30%. Banks keep above that, today, liquidity ratio is almost about 43%. Cash Reserve, is about 32.5%.
“The loan to deposit ratio which means the banks are not over trading is just above about 52.47% with that we’re happy that in spite of maintaining these prudentials, that the banks still remain profitable, the ROI, the return on equity or return on profitability, profitability ratios have remained relatively strong. Even though when banks convert those probability from Naira to dollar. They look the same weaker, but at the same time, the Nigerian banks have continued to make profit and they have continued to pay good dividend to their shareholders,” the CBN Governor explained.
Curtailing Risk
He maintained that these Prudential guidelines or regulations helped in the curtailment of risk on the Nigerian banking industry.
“Nigeria, again, is one of those countries in the world where even after a bank has declared profit and pay taxes, a certain percentage of his profit must be set aside in order to build retained earnings and capital. If you’re a small bank is going to be 25%, one quarter of whatever profit you made, you set aside and build into what we call the statutory reserve fund, in order to improve the capital of that bank.
“If you’re a big bank, then it is reduced to 15% of your profit after tax that is held back to build your retained earnings and your statutory reserve fund towards ensuring that your capital adequacy ratio remains strong. So I believe we’ve done well.
“Most banks are unhappy when this issue of Cash Reserve Ratio comes up, but I think at this time, we are looking at it and say thank God, we have this Prudential guidelines that have helped to insulate Nigerian banks from the kind of contagion that we’ve seen in the United States and Switzerland since last week,” he added.
Confidence Okwuchi
