Following the result of the stress test recently conducted by the Central Bank of Nigeria (CBN) on the status of the banking system, the Capital Adequacy Ratios (CARs) of three big banks were found to have fallen below regulatory capital requirement.
Overall, the result of the solvency stress test which was carried out at the end of December last year indicated the potential for high contagion risk through unsecured interbank exposure as three banks including two Systemically Important Banks (SIBs) failed CAR after a 100 per cent default shock.
The test, contained in the Financial Stability Report, released on Wednesday by the CBN governor, Godwin Emefiele, classified lenders into three groups – large banks, those with assets greater than or equal to N1 trillion; medium banks with assets greater than or equal to N500 billion but less than N1 trillion and small banks with assets of less than N500 billion.
The CAR is a ratio of bank’s assets to its risks and is 10 per cent for national banks and 15 per cent for banks with international subsidiaries and 16 per cent for SIBs.
It said the baseline CAR for the banking industry, large, medium, and small banks stood at 14.78, 15.47, 12.75 and 3.14 per cent respectively.
It also evaluated the resilience of the banks; 23 commercial and merchant banks to credit, liquidity, interest rate and contagion risks.