CBN should curb rising banking sector risks, says IMF

The International Monetary Fund, on Wednesday, called on the Central Bank of Nigeria to contain rising banking risks, while also commending the regulator for its recent decision to stop weak banks from paying dividends to shareholders.
Against the backdrop of huge non-performing loans, which have weakened the capital base and asset quality of the country’s Deposit Money Banks, it also called on the apex bank to carry out an asset quality review, in order to identify any potential capital need among the lenders.
The call came in the IMF’s Article IV Consultation, an annual appraisal of a country’s economy, which was released in Washington, D.C., United States.
The report came a few days after an IMF team completed its Article IV Consultation visit to Nigeria for 2018.
The IMF executive board assessment report read in part, “Directors stressed that rising banking sector risks should be contained. They welcomed the central bank’s commitment to help increase capital buffers by stopping dividend payments by weak banks.
“They called for an asset quality review to identify any potential capital need. They noted that an enhanced risk-based banking supervision, strict enforcement of prudential requirements, and a revamped resolution framework would help contain risks.”
The proposed asset quality review by the IMF will help the CBN to determine if banks have made adequate provision for NPLs and that whether the loans are properly classified, according to experts.
It will also help the regulator to know if some banks have adequate capital.
The level of the NPLs in the industry is currently at 14 per cent, far above the five per cent recommended by the CBN.
Some local experts said the CBN might ask the banks, which have their NPLs above the industry average, to recapitalise, so as to avoid insolvency.
The Washington-based lender, however, commended the CBN for maintaining a tight monetary policy stance, just as it lauded it for its foreign exchange policy, which has attracted forex inflow to enhance exchange rate stability.