New Telegraph

Banks may fail stress tests if downturn deepens –Report

Nigerian lenders will drop below minimum capital buffers required by regulators should the economy shrink further this year, according to recent stress tests done by the Central Bank of Nigeria (CBN). The tests show that a 3.50 per cent contraction in gross domestic product in the third quarter may lead to lenders’ capital adequacy ratio dropping to an average of 11.2 per cent from 15 per cent, the Abuja-based central bank said in a report on its website.

 

A 4 per cent decline in the economy in the final quarter will probably drag the measure to 9.3 per cent, it said. “The stress test was conducted within the background of a sharp fall in oil prices, reduced global demand for Nigeria’s oil products, decline in government revenue, unfavorable current- account position and a fall in GDP,” the Central Bank said.

 

“The severity of the simulated GDP contraction may be contained by a combination of fiscal and monetary interventions.” Weak Lending Credit growth in Nigeria slows to four-month low even after interest-rate cuts, with banks reluctant to take bad-loan risks

 

The economy of Africa’s biggest crude producer shrank 6.1per cent in the second quarter as the lockdown to contain the coronavirus and an oil slump curbed government revenue and shuttered businesses. GDP may contract 4.3 per cent this year, the International Monetary Fund said on Oct. 13.

 

Protests over police brutality last month may also weigh on growth. Nigerian banks with international operations are required to have a minimum capital ratio of 15 per cent, while those with domestic businesses have a 10 per cent threshold. The average of non-performing loans could more than double to 16.7 per cent this year should 25 per cent of total credit extended in the economy that hasn’t yet been restructured be lost, the apex bank said.

 

Non Performing Loans improved to 6.4 per cent in June from 11.1 per cent a year earlier after loans were restructured. The CBN has urged lenders to restructure 65 per cent of the industry’s loans.

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