The International Monetary Fund (IMF) has advised the Central Bank of Nigeria (CBN) to take bold action against banks that fail to meet capital requirements, emphasizing the need for financial stability in the country.
While the CBN has assured the public of the banking industry’s stability, analysts warn that the implementation of Basel III regulations, which began last year, may expose some banks’ capital inadequacies. The IMF noted that regulatory leniency during the pandemic could lead to risk accumulation in commercial banks.
Basel III, introduced in response to the 2007-2009 global financial crisis, sets stricter capital adequacy, liquidity, and risk coverage requirements. Nigerian banks must maintain minimum capital ratios, with Tier 1 capital now split into Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1) capital.
Analysts at Meristem Research found that while most banks meet the new requirements, some are borderline compliant or below the regulatory line. A few banks have raised funds to bolster their capital base, but others, such as FBN Holdings, Union Bank, and Wema Bank, need to enhance their capital to meet regulatory requirements. Unity Bank, with a negative equity position, requires significant capital injection to comply.
The IMF’s call for decisive action underscores the importance of ensuring financial stability and enforcing regulatory requirements to prevent potential risks in the banking sector.
