Banking Sector Soundness
The health of banks improved in the review period, following the sustained recovery in macroeconomic conditions, including declining inflation, stable exchange rate and gradual upswing in the real economy. At end-June 2018, the industry average capital adequacy ratio (CAR) was 12.08 per cent, compared with 10.23 per cent and 11.51 per cent at end-December 2017 and end-June 2017, respectively. The development reflected the increase in banks’ total qualifying capital. The industry threshold, however, remained at 15.0 per cent for banks with international authorisation and 10.0 per cent for banks with either national or regional authorisation.
Asset quality of the banking industry, measured by the ratio of nonperforming loans to total loans (NPL ratio) fell to 12.45 per cent at end-June 2018, compared with 14.80 per cent and 15.02 per cent at end-December 2017 and end-June 2017, respectively. At this level, the ratio, remained above the regulatory threshold of 5.0 per cent. The decrease in the NPL ratio reflected the effect of the favourable macroeconomic conditions and stricter prudential regulation.
To further consolidate on the improvement, the CBN directed banks to intensify efforts at debt recovery, realisation of collateral for lost facilities and strengthening their risk management processes. Loan loss provision was 75.74 per cent at end-June 2018, as against 80.4 per cent in the corresponding period of 2017. The industry liquidity ratio increased to 46.09 per cent at the end of the first half of 2018, from 45.8 per cent at end-June 2017, reflecting the rise in the stock of liquid assets held by banks.
With the exception of three (3) commercial banks, all others met the minimum regulatory liquidity ratios of 30.0 per cent for commercial banks; 20.0 per cent for merchant banks; and 10.0 per cent for non-interest banks, at end-June 2018