Shareholders in banks quoted on the main and premium boards of the nation’s stock market reported a cumulative loss of about N115 billion during the year ended December 31, 2021, following profit taking witnessed in the sector. Checks by New Telegraph revealed that the stocks recorded loss of N115 billion or 4.14 per cent to close at N2.662 trillion in market capitalisation on the last trading day of the year as against opening figure of N2.777 trillion at the beginning of trading on January 4, 2021. The implementation of the BASEL III guidelines in November 2021 is expected to have implications for banks in terms of a tradeoff between having solid capital base and dividend payouts, high liquidity and strong margins and loan growth.
The Group Managing Director, Afrinvest West Africa, Ike Chioke, who stated this recently in Afrinvest’s 2021 Nigerian Banking Sector Report themed: ‘Resilience Amidst Endemic and Pandemic Constraints,’ noted that “it is our view that the guideline would help in controlling liquidity, make banks stronger and more resilient during period of stress given that it addresses issues on minimum liquidity coverage ratio (LCR), capital adequacy and system risk.” Chioke noted that for banks to comply with the LCR criteria, bank would have to hold higher liquid assets while decreasing proportion of longterm debts.
“This will hinder banks’ ability to create higher margins over the long-term. The implementation of Basel III requires a stronger and higher Tier-1 capital to absorb unanticipated shocks. “To this end, we expect banks with weaker Teir-1 capital levels to increase retained earnings as current environment is not very supportive of equity raise combined with the already elevated issued share capital of most banks. “Broadly speaking, it’s safe to conclude that the Nigerian banking sector remained resilient in the face of COVID-19 and several regulatory headwinds.
“Nevertheless, banks’ earnings and asset quality have taken a beating while being under pressure from competition. Also, the pandemic has provided learning points for players in the sector to reshape and reimagine their product/ services offerings for longterm growth and sustainability. “As the broader economy recovers, regulators are expected to relax the support given to the financial system, which might affect some segments of the bank’s business. The banking sector faces a continuous period of uncertainty and the resilience of the sector would depend on players’ response to new developments,” he said. Chioke noted that with the pandemic, the Nigerian Banking sector’s vulnerability heightened, which required swift policy responses from CBN. “Consequently, CBN rolled out stimulus packages to critical sectors with significant loan exposure, reduced interest rate on intervention facilities (from 9.0 per cent to 5.0 per cent) and granted banks the forbearance to restructure loan exposure. As a result, real GDP growth in the financial institutions sector grew by 13.3 per cent y/y. “Nonetheless, the sector’s earnings and profitability slowed in 2020, hurt by the stringent implementation of the CRR policy (27.5 per cent), which effectively sits at north of 50.0 per cent for some banks due to CBN’s non-refund policy and the discretionary excess debits.