Nigerian Banks are expected to meet certain criteria in order to be allowed to grant new credit facilities in the 2020/2021 fiscal years according to the Central Bank of Nigeria (CBN).
The criteria include minimum capital adequacy ratio,specified liquidity ratio, provisions of the prudential guidelines, minimum shareholders’ funds, pacified cash reserve requirement, and sound corporate governance.
This was stated in the Monetary, Credit, Foreign Trade andExchange Policy Guidelines For Fiscal Years 2020/2021, released on September 11,2020 by the CBN.
Following the introduction of the LDR policy, total grosscredit increased by N3.33 trillion between May 2019 and June 2020.
Sanusi, Aliyu Rafindadi, a member of the MPC said in his personal statement that most of this increase in credit was extended to manufacturing, consumer credit, general commerce, Information and Communication Technology (ICT) and Agriculture.
The minimum ratio of total qualifying capital to total risk-weighted assets shall remain at 10.0 per cent for regional and national commercial banks, and 15.0 per cent for international commercial banks in the2020/2021 fiscal years.
Report on the Banking System Stability Review shows that despite the challenges posed by the COVID-19 lockdown, the banking system remained sound and resilient. The industry capital adequacy ratio had increased to 15% in June 2020, which meets the industry prudential benchmark. TheNon-performing loans ratio (NPL) has declined to 6.4% in June 2020 from 6.6% inApril 2020 and 9.36% in the corresponding period of 2019. Total Assets of the industry has continued to rise, standing at N47.82 trillion as at end-June2020. Total banking industry credit to the economy has continued to increase even during the months of the lockdown, standing at N18.9 trillion as at end-June 2020.
“Even with an increasingly fragile global macro-financialcondition and rising domestic credit, the Nigerian banking sector remainedlargely resilient with NPLs ratio continuing to moderate from 11.2 percent inMay 2019 to 6.4 percent in June 2020,” Godwin Emefiele, governor of the CBNsaid in his personal statement at the last Monetary Policy Committee (MPC)meeting in July 2020.
According to the policy guideline, not less than 75.0 percent of banks’ capital shall comprise paid-up capital and reserves. Banks shall also maintain a ratio of not more than one to ten (1:10) between adjusted capital funds and total credit net of provisions. They are encouraged to maintain a higher level of capital commensurate with their risk profile. Banks and banking groups are required to comply with the appropriate guidelines for the measurement and calculation of capital requirements.
The policy guidelines stated that the minimum liquidity ratio for commercial, merchant and non-interest banks shall be retained at 30.0, 20.0and 10.0 per cent, respectively, subject to review from time to time. In the2020/2021 fiscal years, the ratio of loans to deposits ratio shall be a maximum of 80.0 per cent.
The Cash Reserve Ratio (CRR) for deposit liabilities which stood at 22.50 per cent in 2019 and adjusted to 27.5 percent in January 2020 shall continue to apply, subject to review by the CBN in line with prevailing economic and liquidity conditions. The maintenance period for the Cash ReserveRatio shall be as prescribed from time to time, the CBN said in the guidelines