Capital Adequacy Ratio Of Banks Drop To 11.2% As CBN Deputy Governor, MPC Members React

The Capital Adequacy Ratio of Nigerian banks has fallen to 11.2 per cent- which is just a few points close to being below the regulatory threshold permitted by the Central Bank of Nigeria.

It fell from the 14.11 per cent capital adequacy ratio (CAR) which it was in June 2022.

According to the personal statement of the MPC members seen by THE WHISTLER, the CAR level fell to 11.2 per cent in June 2023 from 13 per cent in May 2023.

Capital Adequacy Ratio provides an overview of whether a bank has sufficient funds to cover losses and remain solvent under tough financial circumstances.

The acceptable limit set by the CBN is between 10 per cent 15 per cent.

Edward Lametek Adamu, Deputy Governor, Corporate Services Directorate and member of the Monetary Policy Committee of the apex bank said the recent wave of banking system crisis in the United States and Europe should be an important learning point.

Adamu said, “It is comforting that the banking system continues to be resilient. However, it may be too early to judge the impact of recent developments on the industry financial soundness indicators (FSIs).

“Amongst others, preserving the stability of the system continues to be a key priority on its own, and for effective transmission of monetary policy impulses.

“Already, there are warnings coming from some of the indicators like the Capital Adequacy Ratio (CAR) which, though still within the regulatory threshold, has gravitated slowly to 11.23 per cent from 14.11 per cent a year ago.

“Much as the situation is not yet alarming, ignoring it could prove sub-optimal in the medium- to long-term. Slowing the pace of upward adjustment in interest rate could cushion any underlying vulnerability in the banking system.”

Another MPC member Adenikinju, Adeola said report on the banking system stability review presented to members of the MPC showed that the banking system remains strong, sound, and resilient.

However, he noted the decline of the CAR from 13 per cent in May to 11.2 per cent in June to be alarming.

Asogwa, Robert in his statement explained that the decline in the capital adequacy ratio of banks was “mainly because of the foreign exchange unification but remains above the prudential requirement.”