2 banks show signs of distress, fail CBN’s test

Posted by News Express | 20 October 2014 | 3,843 times

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Two banks have failed to meet the stipulated Capital Adequacy Ratio (CAR) of 10 per cent, according to New Telegraph. “Consequently, the Central Bank of Nigeria (CBN) has directed management of two lenders whose CAR fell below threshold as at end of August 2014 to recapitalise,” the paper reported this morning.

According to the report, “The two banks, whose identities were not disclosed by the apex bank, have been put under close monitoring for compliance. CBN Deputy Governor (Economic Policy), Dr. Sarah Alade, disclosed this to bank chiefs last Thursday at the Bankers’ Committee meeting in Abuja, where she presented the latest report on state of the economy and banking sector.

“Nigeria joined other global banks to adopt the Basel I and Basel II Accord in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–2008. The Basel Accord is a global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk. It stipulates that banks meet the regulatory minimum CAR of 10 per cent.

“The CAR, also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank’s capital to its risk. Regulators track a bank’s CAR to ensure that it can absorb a reasonable amount of loss and comply with statutory capital requirements.

“This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a windingup and so provides a lesser degree of protection to depositors.”

•Photo shows CBN Governor Godwin Emefiele.


Source: News Express

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