At 32.60%, UBA Leads Banking Sector Capital Adequacy Ratio in 2023FY

Kayode Tokede

Aside from generating significant increase in profit and assets, United Bank for Africa (UBA) reported 32.60 per cent Capital Adequacy Ratio (CAR) in 2023 financial year to outperform other banks in terms of maintaining soundness and resilient financial institutions.

The Pan-African financial institution had in the 2022 financial year declared 28.30 per cent CAR.

The lender in its 2023 financial year reported a Liquidity Ratio (LR) of 64 per cent from 68.30 per cent in 2022 financial year.

Zenith bank Plc, however, outperformed others in LR, declaring 71 per cent in 2023 from 75 per cent in 2022.

The Central Bank of Nigeria (CBN) required the banking subsidiary with international authorisation to maintain a CAR (total regulatory capital to risk weighted assets) of 15 per cent.

Conversely, the finance company and microfinance banking subsidiaries are to maintain CARs of 12.5 per cent and 10 per cent respectively.

Also, the apex bank required all banks to maintain LR of 30 per cent.

With an exception of Unity Bank and Jaiz Bank Plc, an independent investigation by THISDAY revealed that other 11 listed banks on the Nigerian Exchange Limited (NGX) have CAR and LR above CBN’s requirement.

The Nigerian financial system was resilient in 2023 as the banking sector remains sound and stable as the industry CAR remained above the minimum threshold of 10–15 per cent in 2023.

Similarly, LR remains above the regulatory threshold of five per cent and 30 per cent, respectively.

According to the CBN, the goal of the guidelines was to specify the minimum Liquidity Coverage Ratio (LCR) standards for reporting companies in the banking system.

Further investigation showed that GTCO was close to UBA in terms of CAR, closing 2023 at 21.94 per cent from 24.08 per cent in 2022FY.

GTCO in a presentation to investors & analysts said, “The group continued to maintain strong capital positions with Full IFRS 9 impact Capital Adequacy Ratio (CAR) of 21.9 per cent (Bank: 21.0 per cent) based on approved CBN June 2023 capital position, 690 basis points above the regulatory minimum of 15 per cent (590 bps if adjusted for additional 1 per cent loss absorbency ratio).

“Tier 1 capital constitutes a very significant component of the Group’s CAR closing at 20.12 per cent representing 92.5 per cent (FY-2023 Capital Position – 92.1 per cent) of the Group’s CAR of 21.9 per cent based on approved June 2023 capital position. CAR would have closed 29.6per cent (Bank: 28.2 per cent) if it was permissible for the Group to use December 2023 capital position in its Capital Adequacy Ratio computation.”

GTCO added that the robust capital position provides the Group with the needed headroom required for future expansion and risk-taking.

“The Group’s capital has also been sensitised for Basel III compliance at three levels of naira devaluation: N1000, N1300, and N1500/$1 and is robust enough to meet the requirements of additional capital buffers for conservation and counter-cyclical events under Basel III and impact of the expected growth in the value of FCY risk-weighted assets,” GTCO stated in a presentation.

GTCO reported LR of 31.08 per cent from 49.93 per cent reported in 2022 FY which above minimum 30 per cent requirement of CBN.

According to GTCO, CRR increase of N632.2 billion mapped under restricted deposits with Central Bank largely accounted for the y-o-y dip in liquidity ratio.

“Despite the pressure from competition and the need to cover for regulatory CRR debits, the Group maintained an average liquidity ratio of 36.1per cent during the period under review,” GTCO added.

An investigation by THISDAY showed that Zenith Bank Plc followed by Access Holdings Plc closed 2023 with CAR of 21.70p per cent and 19.01 per cent, respectively.

Access Holdings explained that the Tier 1 capital represents 74 per cent of total regulatory capital at N1.475 trillon.

“Liquidity Ratio closed at 51.8 per cent in 2023 from 39.5 per cent in 2022. 20223 liquidity ratio is 12.3 per cent above the regulatory minimum. Capital and liquidity ratios have sufficient buffers to withstand market shocks,” Access Holdings explained in a presentation.

Another strong Tier-1 bank, First Bank of Nigeria, the banking subsidiary of FBN Holdings reported 17.90 per cent CAR in 2023 from 16.80 per cent in 2022FY.

However, Stanbic IBTC   Holdings saw its CAR at 19 per cent in 2023 from 21.20 per cent reported in 2022, while FCMB Group come close at 15.60per cent CAR in 2023 from 16.24 per cent in 2022FY.

Among investigated banks by THISDAY, Sterling and Wema Bank had the lowest CAR in the period under review.

While Wema Bank declared 16.04 per cent CAR in 2023 from 12.74 per cent in 2022, Sterling Bank announced 12.51 per cent CAR in 2023 from 37.20 per cent in 2022.

Reacting, analysts stressed that the statutory required liquidity ratio for banks is 30 per cent, maintaining that for Zenith Bank to have a liquidity ratio above 70 per cent is an interesting development.

 “If a bank has investment opportunities in the economy, a major portion of that fund that constitutes liquidity ratio is expected to be invested in such investments. It is expected that the investment will yield income for the bank and boost shareholders returns on investment.

“The bank can invest in government bond, treasury bills and extend credit to customers. There are other areas of investment. However, if a bank has not done all these, it means such bank is holding a lot of liquid assets in their coffer.

“Is either the management does not have confidence in the operating environment or they are not confidence if they regain their investment. It is unexpected for banks to have a very high liquidity ratio but it must be maintained above the regulatory requirement which is 30 per cent,” said Vice President, Highcap Securities, Mr. David Adnori

On his part, Investment Banker & Stockbroker, Mr. Tajudeen Olayinka expressed that customers’ deposits is very critical in determining a bank’s liquidity ratio.

According to him: “A bank with higher capacity to boost deposit will have higher liquidity ratio than the one with lower deposit mobilisation capacity. We know Zenith bank, among other Tier-1 banks have covered the market shares and it is expected to reflect in their LR.”