Events of the last one week that saw at least one commercial bank taken over by the central bank in Nigeria has raised concerns over the stability of the country’s financial institutions.
The Central Bank of Nigeria (CBN) announced last week that it had taken over management of the country’s eighth largest commercial bank, Skye Bank, over what it said were consistent breach of cash liquidity ratios by the lender.
Over the weekend, CBN further disclosed that “one or two other” banks were showing signs of distress.
This followed a stress-test conducted by the regulator in 2015, which revealed that the capital position of ‘three small banks’ had fallen below the required capital requirement, News Express reported.
This is not the first time the Nigerian banking system is coming under stress.
In 2008-09 — during the global financial crisis — about 10 banks were bailed out by the CBN and several bank executives fired in one of the worst crisis in the West African nation. This forced the regulator to increase capital requirements for bank that forced smaller banks to be take-up by larger operators.
For a country of over 170 million people, Nigeria has 23 banks serving them, which is much smaller than in Kenya where 44 banks serve about 45 million people.
Fast forward, and a commodity rout that started at the end of 2014 has pushed the country’s financial institutions on a brink of another crisis.
While authorities have maintained that banks are not in distress at the moment, there has been an increase in unpaid loans as Africa’s largest economy stare at a possible recession dragged down by a tumbling local currency and low oil prices on the international markets.
“There’s a chance we’re going back to several years ago when banks were taken over. There are still way too many banks. Some of them have to go,” Zoran Milojevic, a frontier markets analyst at brokerage Auerbach Grayson & Co., told Bloomberg.
According to Dele Sobowale, the take over of Skye Bank by the CBN disproved claims that bank consolidation that took place between 2004 and 2010 had created banks that were big enough to fail.
“The CBN gave its reasons for the take-over – which some banking sector watchers considered too late and which will produce unintended consequences,” Sobowale said.
