NIGERIA’s tier-1 banks’ total liabilities rose to N57.81 trillion as of September 30, 2023, as the depreciating value of the naira is eroding banks’ capital base.

A cursory look at Zenith Bank, United Bank for Africa (UBA), Access Holdings, and Guaranty Trust Holding Company’s (GTCO) nine-month financial statements revealed that the tier-1 banks’ total liabilities rose by 44.07 per cent to N57.81 trillion from N40.12 trillion on December 31, 2022.

The ICIR analysis of the statements shows that Zenith Bank’s total liabilities increased by 48.91 per cent, from N10.91 trillion to N16.24 trillion, followed by UBA, whose financial obligation rose by 45.52 per cent, from N9.94 trillion to N14.46 trillion.

Access Bank’s total liabilities rose by 43.57 per cent, from N13.77 trillion to N19.77 trillion, while GTCO’s financial obligation also rose by 33.13 per cent, from N5.52 trillion, to N7.34 trillion in the review period.

Total liabilities are the combined debts and obligations the tier-1 banks owe in short-term, long-term, and other liabilities.

Ecobank Transnational Incorporated (ETI), which joined the tier-1 banks’ league this year, having moved away from a tier-II ranking in 2021/2022, according to Proshare Bank Strength Index (PBSI) ranking for 2023, has yet to release its third-quarter results.

Before the Proshare ranking, tier-1 banks were captured under FUGAZE, a collective acronym for FBN Holdings, UBA, GTCO, Access Bank, Zenith Bank, and ETI.

Analysing its ranking, Proshare lamented that if measured based on market capitalisation, one or two tier-1 banks would be in and out of the categorisation, depending on share price movement.

But if based on share capital, all the banks listed on the Nigerian Exchange Limited (NGX) have their share capital below the N25 billion statutory minimum prescribed by the Central Bank of Nigeria (CBN).

“None would qualify as a tier 1 bank,” the report clearly stated.

Meanwhile, in the review period, the banks’ total assets rose by 44.47 per cent, from N44.59 trillion to N64.42 trillion, a relatively slight difference compared to the percentage rise in total liabilities.

UBA’s total assets rose by 49.54 per cent, from N10.86 trillion to N16.24 trillion as of September 30; Zenith Bank followed with a 47.82 per cent rise, from N12.29 trillion to N18.16 trillion, Access Bank by 42.72 per cent, from N14.998 trillion to N21.41 trillion, and GTCO by 33.65 per cent, from N14.998 trillion to N8.62 trillion from N6.45 trillion.

Weakening value of naira eroding banks’ capital base

The continued weakening of the naira value against other currencies, mainly the United States dollar, has been a concern, especially since the recent exchange rate unification, making financial analysts worry about the banks’ soundness and call for the banks’ recapitalisation.

Some analysts even argued that the 2004 recapitalisation of the banking industry, which increased banks’ capital base from N2 billion to N25 billion in 2004, had weakened.

“The minimum capital requirements of the banking industry need to be reviewed in the light of the considerable loss of value amid depreciating domestic currency.

“During the banking consolidation exercise of 2004, the minimum capital requirements for banks were raised from N2 billion to N25 billion. The revised capital requirement was an equivalent of $187 million,” an economist, Muda Yusuf, said.

Yusuf, the director/chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), explained that in today’s reality, the current N25 billion banks’ capital base is the equivalent of just $32.5 million.

“This is a clear indication of the phenomenal erosion of the capital base of the banks. Recapitalisation of the banks has, therefore, become imperative.

“It is important to ensure that the capital base of banks can support their current exposures in the interest of the financial system’s stability,” he said.

For Yusuf, steps should be taken to reduce concentration risks in the banking system as a strategy to manage systemic threats to the system.

“The top ten banks account for over 80% of bank assets, total loans, and deposit liabilities. This structure poses systemic vulnerability risks. Better spread of assets and liabilities in the banking system is desirable,” the renowned economist added.

At its last Monetary Policy Committee (MPC) meeting held on July 24 and 25, the CBN noted the potential impact of the recent policy reforms on financial system stability and called on its management to act proactively to “ringfence” the banking system from any possible “second-round effects,” amid the tight global and domestic economic conditions.

Due to the overhauling of the apex banks’ leadership, the MPC could not hold the two-day bi-monthly statutory meeting in September, which it uses to consider, recommend, and take critical economic decisions.

The change saw the suspension and resignation of the CBN governor at the time, Godwin Emefiele, the removal of the four deputy governors by President Bola Tinubu, and the subsequent appointment of a new set of committee of governors, now headed by Olayemi Cardoso for the apex bank.

Since resuming office, Cardoso and his team have not hinted Nigerians of the banking system’s resilience.