The Central Bank of Nigeria
(CBN) has relaxed the time limit for commercial banks to absorb impairments
from implementation of IFRS9 rules on bad loans.
The apex bank disclosed this in an emailed
response to questions, according to Bloomberg. According to the responses, the
banks now have four years to absorb impairments arising from the implementation
of IFRS 9 accounting standards last year, thereby easing fears that an
immediate transition would have severe repercussions for banks’ capital
adequacy ratios
The Central Bank of Nigeria head office in
Abuja. CBN stated: “The total provision amount is to be absorbed over the next
four years in four equal parts to cushion the effect”. However, Some banks said
that the migration would deduct as much as 400 basis points from their capital
bases. Commenting on the development, an analyst at Lagos-based First Bank of
Nigeria Quest, Tunde Abidoye, said: “The decision is a good development for the
banks as it gives them more time to either raise capital or build up more
capital from retained earnings over the four-year period. Most small and
medium-sized banks have capital adequacy ratios close to the regulatory
minimum.”
Lenders with international
licenses are required to have a minimum capital adequacy ratio of 15 percent
and those with local licenses 10 percent. The industry average rose to 12.1
percent in June from 10.2 percent at the end of 2017. While the regulator wants
to protect the industry from unforeseen shocks locally and internationally following
2016 recession, many smaller lenders are battling to raise capital. The apex
bank plans to introduce strict new capital rules in the second quarter of 2019
(Q2,19) that will focus on what sort of funding qualifies as capital. The
rules, which will align the banking industry with the international accord
known as Basel III, also require lenders to create buffers that should help
them in the case of a crisis.
VANGUARD
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