The Central Bank of Nigeria (CBN) has reported a significant rise in the Capital Adequacy Ratio (CAR) of the nation’s banking sector, which increased to 14.01% in the third quarter (Q3) of 2024. This marks an improvement of 1.49 percentage points from 12.52% in the previous quarter, underscoring the resilience and stability of Nigerian banks despite ongoing economic pressures.
The increase reflects a strengthening of banks’ total qualifying capital and a reduction in risk-weighted assets, signaling improved financial health. The CAR remained above the 10.0% threshold for banks with national/regional authorisation but fell short of the 15.0% required for banks with international authorization. This solid performance in capital adequacy came at a time when other metrics, such as asset quality, showed some decline.
The banks’ non-performing loans (NPL) ratio rose by 0.68 percentage points to 4.58%, compared to 3.90% in the second quarter. Despite the rise in bad loans, this figure remains below the prudential benchmark of 5.0%, indicating that the banking sector’s asset quality is still within acceptable limits.
Liquidity levels also saw an improvement, with the industry Liquidity Ratio (LR) rising by 2.47 percentage points to 46.06% in Q3 2024, up from 43.59% in Q2 2024. This boost in liquidity suggests that Nigerian banks are in a strong position to meet their financial obligations, staying well above the minimum regulatory benchmark of 30.0%.
However, the report also noted a decrease in demand for Nigerian Treasury Bills (NTBs) and Federal Government of Nigeria (FGN) Bonds in Q3 2024. The total NTBs offered and subscribed fell to N1.69 trillion and N4.19 trillion respectively, down from the previous quarter. Similarly, FGN Bonds saw lower subscription levels, with a marginal rise in the stop rates for both NTBs and bonds. This slowdown in demand for government securities is attributed to inflation expectations, a factor that has weighed on investor appetite for longer-tenure government instruments.
Despite these challenges, the CBN’s report highlights the improved stability and strength of the banking sector, as it continues to navigate the complexities of a challenging economic environment.