Nigerian Banks at Risk if Contraction Persists, CBN Says

By Chuks Emele

The Central Bank of Nigeria said the country’s banks will be at risk if the current economic contraction continues into next year.

The economic impact of the coronavirus pandemic such as lower government revenue,  loss of businesses and jobs and heightened risks to the country’s financial system, prompted a review of the banks’ vulnerability to systemic risks, the central bank said in its half-year review published on its website.

Using mild-moderate-scenarios, the CBN found the industry “may be vulnerable under severe scenario of sustained economic contraction.” A 3.5 percent contraction of growth in the third quarter of this year will result see the capital adequacy ratio of banks fall from current 15 percent to an average of 11.2 percent,  the central bank said in a report on its website. It will slide further to 9.3 percent if the economy shrinks by 4 percent in the fourth quarter.

CBN Governor Emefiele

“However, the severity of the simulated GDP contraction may be contained by a combination of fiscal and monetary interventions,” the report concluded.

Nigeria, which relies on crude-oil exports for more than 70 percent of government revenue and more than 90 percent of foreign receipts, has experienced a dramatic plunge in revenue as the lockdown that came with the coronavirus wiped off most of demand.