- 7 Commercial Banks Sick, CBN
7 Commercial Banks Sick, CBN
SouthEaastPost Oct 18, 2019 12 Views
As Reported Fraud Cases Increased
The Central Bank of Nigeria, CBN, has said that the funding positions of seven out of the 24 commercial banks in the country are inadequate.
The apex bank said Thursday that the result of a stress test conducted on them showed their funding positions were weak, without naming any of those affected.
According to the financial stability report signed by CBN Director, Financial Policy and Regulation Department, Kelvin Amugo, in the less than a 30-day period analysis, the unnamed banks were not adequately funded.
The apex bank stressed that reported cases of fraud and forgeries by banks increased to 25,029 at end-December 2018 from 20, 774 at end-June 2018. However, the total amount involved decreased to N18.94 billion at end- December 2018 from N19.77 billion at end-June 2018.
Amugo stated that, while in the 31 to 90-day period, nine banks had funding gaps, even as the cumulative position for the industry showed an excess of N4.8 trillion assets over liabilities.
The report, which covered the period ended December 2018, showed that six banks accounted for N252 billion or 82 per cent of the total placements and 86 per cent or N 266 billion of total takings.
Even at that about N190 billion or 71 percent of the total placements was provided by the top four placers of funds.
The CBN further stated that the stress test result showed rthat, after a one-day run scenario, the liquidity ratio for the industry declined to 34.69 per cent from the 51.87 per cent pre-shock position and to 17.55 and 13.48 per cent after a five-day and cumulative 30-day scenarios.
The result further showed that, under a five-day and cumulative 30-day run scenarios on the banking industry, liquidity shortfalls declined to N1.58 trillion and N1.98 trillion respectively.
Experts said that the results of the stress test of default in exposure to the oil and gas sector showed that the banking industry could withstand up to 50 per cent default as the post-shock Capital Adequacy Ratio, CAR, remained at 10.24 per cent.
On the results of the stress tests on the net position of interest sensitive instruments, the CBN said, it showed that the banking industry would maintain a stable solvency position to interest rate shock of up to 1000 basis points downward shift in yield curve as the post-shock CAR declined marginally from 15.26 to 13.41 per cent.
This was even as the industry pre-shock assets and liabilities maturity profile at end of December 2018 showed that at the shorter end of the market, less than 90 day buckets were adequately funded.
Contagion risk from the unsecured transactions in the interbank market was moderate at the end of December 2018, as results of simulated conditional counter-party default from unsecured interbank loans indicated low risk as the banks, except two, maintained post-shock CAR above 10 per cent.
During the period under review, the Implied Cash Flow Analysis, ICFA, assessed the ability of the banking system to withstand unanticipated substantial withdrawals of deposits, short-term wholesale and long-term funding over five days and cumulative 30 days, with specific assumptions on fire sale of assets.
The CBN stressed that the test assumed gradual average outflows of 3.8, 5.0 and 1.5 per cent of total deposits, short-term funding and long-term funding, over a five -day period and a cumulative average outflow of 22, 11 and 1.5 per cent of total deposits, short-term funding and long-term funding respectively, on a 30-day balance. Furthermore, it also assumed that the assets in Table 3.10 would remain unencumbered after a fire sale.
In a similar vein, actual losses in banks declined to N2.21 billion at end-December 2018 from N12.10 billion in the first half of 2018, just as the total number of reported fraud cases in OFIs stood at 754 at end-December 2018, while the actual loss of N120.98 million was recorded during the same period.
During the period under review, Automated Teller Machine, ATM, and mobile channels, with 1,612 cases, recorded the highest incidence of fraud. To tackle this trend, bank customers were continually sensitised on safe banking practices while banks were encouraged to implement strong authentication controls and carry out comprehensive infrastructure risk assessments.
This showed an increase of 173 complaints or 12.02 per cent over the 1,439 received in the first half of 2018. Of this number, 1,602 complaints or 99.38 per cent were against banks, while 10 complaints or 0.62 per cent were against OFIs. The complaints were in various categories, such as Excess/Unauthorised charges, Frauds, Guarantees, Dispense errors, Funds Transfers.
A total of 1,496 complaints were successfully resolved or closed in the period under review, compared with 4,723 in the first half of 2018, indicating a decrease of 3,227 or 215.71 per cent. Total claims made by complainants during the period amounted to N7.995 billion and US$1.767 million, while the sums of N3.093 billion and US$1.724 million were refunded to customers.
Amugo pointed out that the banking sector's outlook is positive, given the expected enhanced capital base for most banks arising from the capitalisation of year 2018 profits in the first half of 2019, just as the
However, banks’ exposure to the oil and gas sector as well as the implementation of International Financial Reporting Standard 9, IFRS 9, remains a threat to overall profitability.
“The CBN will continue to collaborate with the fiscal authority and other financial services regulators to address the observed challenges towards ensuring that the gains made are sustained to reinforce financial system stability,” he said.
During the review period, seven banks were categorised as Domestic Systemically Important Banks (D-SIBs). The banks were selected based on the D-SIB supervisory framework, given their size, interconnectedness, substitutability and complexity. The D-SIBs accounted for 63.80 per cent of the industry total assets of N35.10 trillion and 65.23 per cent of the industry total deposit of N21.73 trillion as well as 66.00 per cent of the industry total loans of N15.34 trillion.
The examination revealed that the D-SIBs were largely in compliance with the regulatory requirements, including capital adequacy and liquidity ratios. The average CAR for the D-SIBs stood at 19.82 per cent, while liquidity ratio stood at 46.29 per cent. There was an improvement in non-performing loans ratio from 11.31 per cent at end-June 2018 to 9.82 per cent at end- December 2018.