Nigeria: Regulations affect Nigerian banks' earnings, says new report

Sep 17, 2014

Nigerian banks' earnings are being weakened by strict regulations, according to Financial advisory and research company Renaissance Capital (RenCap).

Nigerian banks' earnings are being weakened by strict regulations, according to Financial advisory and research company Renaissance Capital (RenCap).

In its latest report titled "Nigerian Banks -The Cost of Macro Stability", it states that in comparison with other banks in the continent, the capital requirements (CAR) for banks in Nigeria are higher than those of their peers in the continent, This Day reports.

It also points out that Nigerian banks have to operate with the higher capital adequacy ratio thresholds given their higher minimum CAR requirement of 15 to 16 per cent.

In addition, the liquidity ratios are higher for Nigerian banks, which implies that they are mandated to hold a higher proportion of deposits in relatively low yielding liquid assets versus their peers in Africa, says RenCap.

The report suggests that regulatory actions - such as the significant increase in the cash reserve requirement (CRR) for public sector funds - have impacted Nigerian
banks'
bottom lines, resulting in weak earnings growth in the first half of 2014.

"The significantly higher system CRR at 31 per cent on our estimates is probably the most punitive of the regulatory requirements. This is because the Nigerian banks not only have to hold more liquid assets than SSA peers by virtue of their higher 30 per cent liquidity ratio, but also have to keep an estimated 31 per cent of deposits in a zero-interest-yielding CRR account at the CBN,"
concludes the report.ADNFCR-2976-ID-801748920-ADNFCR