Nigerian banks face the risk of falling below minimum capital buffers demanded by regulatory authorities in case the economy tightens again before year end, a stress test conducted by the Central Bank of Nigeria (CBN) showed.
A shrinking in the Gross Domestic Product (GDP) by 3.5% in the third quarter could force the capital adequacy ratio of banks to fall to an average of 11.2% from 15%, the apex bank said, just as a fourth quarter slump in the economy by 4% will potentially crash the measure lower to 9.3%.
Also Read: CBN Slashes Monetary Policy Rate to 11.5%
“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, unfavourable current-account position and a fall in GDP.
“The severity of the simulated GDP contraction may be contained by a combination of fiscal and monetary interventions,” CBN said in a report on its website.
Also Read: Nigerian Banks Unlikely to Boost Lending Despite CBN’s Biggest Policy Rate Cut in 6 Years
The Nigerian economy, which depends on oil for over 60% of its revenue, declined by 6.1% from April to June as a government-imposed lockdown aimed at flattening the curve of Covid-19 spread battered businesses and a record oil crash narrowed the flow of crude earnings to a mere trickle.
Lenders in the country, which have overseas operations, are required to have at least 15% capital adequacy ratio, while the rest that operate only locally must have a 10% threshold, according to Bloomberg.
