CBN Completes Stress Test; Declares Nigerian Banks, Sound

By Chris Nomjov

The Central Bank of Nigeria (CBN) on Sunday completed its stress test on all banks operating in the country, declaring the banking institutions, sound.

This, according to a statement from the central bank, was the result of a recent stress test carried out on the financial institutions.
It revealed that the banks have adequate capital to absorb unexpected losses.

The CBN also stated that the unaudited results of banks, and the results released so far, indicated that economic headwinds had not significantly affected returns.

The statement further noted that banks have been directed to have effective risk management systems in place especially price hedging, adding that the CBN would continue to monitor banks to ensure sufficient internal retention of capital to serve as buffers.

The International Monetary Fund (IMF), in its Executive Board 2014 Article IV Consultation with Nigeria released last week, had commended the efforts of the CBN in ensuring financial system soundness.

According to the IMF statement, “Directors noted that financial soundness indicators remain above prudential norms, but the concentration of credit risk and foreign currency exposure call for continued close oversight.

“They welcomed the progress in strengthening supervision and regulation, including of cross-border activities, and encouraged additional initiatives to foster financial market development, including hedging instruments and improved financial inclusion.”

The directors had also commended the unification of the RDAS and interbank foreign exchange market rates, noting that greater exchange rate flexibility could help cushion external shocks.

The IMF statement had further noted that Nigeria’s economic data is broadly adequate for surveillance, just as it agreed that tightening fiscal policy and allowing the exchange rate to depreciate while using some of the reserve buffer were appropriate responses to the recent fall in global oil prices.

The CBN recently urged banks to put in place adequate risk mitigating techniques for the management of their oil and gas exposure. Nigerian banks are currently raising capital to meet capital adequacy requirements under Basel II and III.