Under the current guidelines, the Central Bank of Nigeria
(CBN) requires that banks maintain minimum liquidity ratios as follows: Deposit
Money Banks (DMBs): 30 per cent; merchant banks: 20 per cent; and non-interest
banks: 10 per cent.
Liquidity ratios are a class of financial metrics used to
determine a bank’s ability to pay off its short-term debts obligations. It is
the total specified liquid assets of a bank divided by total current
liabilities.
Analysis of results of deposit money banks in the country
showed that the bank in 2020 financial year reported 66.2 per cent liquidity
ratio.
The bank had while commenting on the development stated,
“Prudential ratios such as liquidity and capital adequacy also remained above
regulatory thresholds at 69.9per cent and 22.0per cent respectively.”
Analysis of the bank’s results for the period under review
sowed that it increased total customer deposits by eight per cent to close June
30, 2021 at N5.77 trillion from N5.34trillion it closed in 2020 financial year to
demonstrate growth in the bank’s market share.
Out of the 10 investigated banks by THISDAY, Wema Bank Plc
has a liquidity ratio below the regulatory requirement.
The bank closed H1 2021 with a liquidity ratio of 25.1 per
cent as against 30 per cent it closed 2020 financial year.
The Monetary Policy Committee of the CBN had disclosed that
the liquidity ratio in the banking sector was above prudential limits at 41.3
per cent as at June 30, 2021.
Commenting on the development, Prof. Hassan Oaikhenan of the
Department of Economics, University of Benin expressed that customers deposits
is very critical in determining a bank’s liquidity ratio.
According to him, “A bank with higher capacity to boost
deposit will have higher liquidity ratio than the one with lower deposit
mobilisation capacity. We know Zenith bank has covered the market shares than
Wema Bank in terms of deposit mobilization.”
Speaking in the same vein, the Vice President, Highcap
Securities, Mr. David Adnori stressed that the statutory required liquidity
ratio for banks is 30 per cent, maintaining that for Zenith Bank to have a
liquidity ratio above 60 per cent is an interesting development.
He explained further that. “If a bank has investment
opportunities in the economy, a major portion of that fund that constitutes
liquidity ratio is expected to be invested in such investments. That will yield
income for the bank for increase shareholders returns on investment and expand
in branches network.
“The bank can invest in government bond, treasury and extend
credit to customers. There are other areas of investment. However, if a bank
has not done all these, it means Zenith Bank is holding a lot of liquid assets
in their coffer.
“Is either the management does not have confidence in the
operating environment or they are not confidence if they plow into an
investment, they yields will be justifiable. It is unexpected for banks to have
a very high liquidity ratio but it must be maintained above the regulatory
requirement which is 30 per cent.”
On Wema Bank with a liquidity ratio of below 30 per cent,
Adnori stated that the ratio is below CBN’s requirement and it is a warning
signal.
“If a bank liquidity ratio is below regulatory requirement
it means their cover for short-term deposit liabilities is very low and it
means short-term deposit the bank carries has been seriously eroded. The bank
has to look for more liquid assets to buff up its liquidity ratio.”
Analyst at PAC Holdings, Mr. Wole Adeyeye expressed that
higher liquidity ratio means a bank stands a chance to its immediate
obligations.
On Zenith bank, he said: “It is expected for the bank to
have liquidity ratio above 60 per cent due to its nature of businesses and
people that are doing business with the bank. The bank focused more on
corporate than individual lending. It is expected for bigger banks to have a
very strong liquidity ratio.”
On its part, Guaranty Trust Holdings Company Plc (GTCO)
reported liquidity ratio closed H1 2021 at 44.71 per cent from 38.9 per cent.
The bank explained that: “Despite the pressure from COVID-19
pandemic and regulatory debits, the Group maintained average liquidity ratio of
40.71 per cent.”
Further checks revealed that Access Bank reported a
liquidity ratio of 50.7 per cent in H1 2021 from 46 per cent in full year ended
December 31, 2020 as United Bank for Africa (UBA) recorded 58.3 per cent
liquidity ratio in H1 2021 from 44 per cent recorded in 2020.
The apex bank had assured that deposit money banks in the
country have remained stable, robust and resilient despite the disruptions by
Covid-19 pandemic.
It had said it would continue to continuously monitor the
bank to detect early vulnerabilities to ensure pre-emptive action as well as
apply some regulatory measures for the growth of the sector.
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