Gbenga Alao
This may not be the best of times for seven of Nigerian banks as they struggle to remain within statutory prudential limit owing to risk of sliding below the regulatory minimum capital adequacy ratio.
The banks are First City Monumental Bank, Unity Bank, Heritage Bank, Diamond Bank, Union Bank of Nigeria, FBN Holding Plc and Skye Bank.
Except there is a sudden inflow of capital, these banks may be compelled to approach the capital market to raise fresh funds to beef up their balance sheet. Unfortunately, the capital market at the moment is unattractive to investors, and this may further compound their ability to raise cheap funds.
The current situation in these banks are triggered by the current macroeconomic and business challenges resulting from the country’s recession which has defiled current remedies by the Central Bank of Nigeria, exposing the banks and pushing them to struggle to remain within capital regulatory limit.
Banks are experiencing a sharp rise in non-performing loans together with tightening foreign currency liquidity, weakening capital adequacy ratios and the sovereign’s ability to support them, given its weaker financial flexibility, Fitch Ratings had said in a recent statement.
Nigeria, which is Africa’s biggest economy, has been experiencing contraction in economic output in recent times owing to slump in oil revenues, and which is negatively impacting on public finances, leading to devaluation of the currency thereby driving up prices of imported goods.