Three ‘Small banks’ in danger after stress test – CBN says

After a liquidity stress test was conducted by the Central Bank of Nigeria (CBN), the test results revealed that the capital position of ‘three small banks’ have fallen below regulatory capital requirement.

The test, contained in the CBN Financial Stability Report released yesterday, showed the Capital Adequacy Ratios (CARs) of the affected banks were below five per cent regulatory threshold.

Although, the three banks are not among the domestic systemically important banks (D-SIBs), it said.The report, which measured the lenders’ positions as at June this year, showed that the number of banks with CAR less than 5% also increased from 0-3 from December 31, 2014 to June 30, 2015. The CAR is a ratio of a bank’s assets to its risks.  According to CBN’s Director, Financial Policy and Regulation Department, Kelvin Amugo, the liquidity stress test was conducted using the Implied Cash Flow Analysis (ICFA) and the Maturity Mismatch/Rollover Risk approaches to assess the resilience of the banking industry to liquidity and funding shocks.

He said the ICFA approach assessed the ability of the banking system to withstand unanticipated substantial withdrawal of deposits, as well as short-term wholesale and long-term funding over a 5-day and cumulative 30-day periods, with specific assumptions on the fire sale of assets.