Nigerian banks may have to boost their capital as a result of the steep devaluation of the exchange rate, following a move by the Central Bank of Nigeria (CBN) to allow banks to trade Foreign Exchange (FX) freely on the Investors and Exporters FX Window.
The removal of the previous cap set by the CBN has enabled the naira find a market level against the dollar based on the forces of demand and supply, with the currency adjusting lower to around 755 naira per dollar in today’s trading, according to data from the FMDQ.
Analysts tell MoneyCentral that banks with positive net exposure to the dollar such as GTBank, Zenith, Access and UBA would benefit from the new exchange rate, as they would book exchange rate gains on this major depreciation of this Naira.
However, on the flip side many of the banks would be expected to raise new equity capital to shore up their capital base soon.
“Notably, over 40% of Nigerian Banks risk Asset base is dollarised and that means that the risk weighted asset increases significantly on the back of this depreciation of the Naira and that would put pressure on capital adequacy ratios of banks,” Abiola Rasaq, former Economist and Head, Investor Relations at United Bank for Africa Plc, told MoneyCentral.
Capital Adequacy Ratio remained unchanged for the banking sector at 13.8% last year, while return on equity (ROE) rose to 20.2% in December 2022 from 18.4% in September 2022, according to the latest Banking System Stability Review Report of the Central Bank of Nigeria (CBN).
Total assets of the banking industry grew by ₦14.36 trillion or 24.24 per cent to ₦73.59 trillion in December 2022, from ₦59.24 trillion in December 2021, driven by balances with CBN/banks, investments, and credit expansion to the real sector.