United Bank for Africa (UBA) Plc, Guaranty Trust Holding Company (GTCO) Plc and Zenith Bank are the most capitalised lenders in Nigeria as profit plough backs helped strengthen capital adequacy ratio (CAR), according a recent by Cordros Securities Limited.
UBA was the most capitalised, with a CAR of 36.0 percent, followed by GTCO and ZENITHBANK, with CARs of 24.7 percent and 22.0 percent, respectively, according to the research house.
It is important to note that Tier-1 banks, most of which are domestic systematically important banks (D-SIBs), recorded a CAR of 22.0 percent (relative to a minimum threshold of 16.0 percent, including a 1.0 percent surcharge, according to the research house.
Of course, the big banks recorded record earnings in 2023 on the back of foreign exchange gains that paved the way for them to plough back profit to strengthen CAR.
The devaluation of the currency by the new government to enhance foreign direct investment ballooned the dollar denominated assets in the books of lenders, and that combined with a higher yield environment put the icing on the cake.
Data gathered by MoneyCentral shows that the combined net income or profit after tax (PAT) of listed banks surged by 151.15 percent to N1.97 trillion in September 2023, from N785.15 billion as at September 2022.
Interestingly, Tier 1 lenders make up 87.87 percent of the total profit, which laid bare the widening gap between the big banks and the small ones. ‘
Analysts at Cordros Securities led by Jolomi Odonghanro said lenders will plough back most of the profit from revaluation gains in 2023FY into the business in the form of retained earnings to support Tier 1 capital, thereby minimising the FX pressures on capital adequacy.
“Tier-2 banks maintained this momentum as the average CAR for the Tier settled at 15.2 percent in September 2023, with no bank in either the International or domestic bank categories breaching the minimum levels of 15.0 percent and 10.0 percent, respectively,” said analysts at Cordros Securities.
A strong capital ensures financial stability and bolsters investors’ confidence in economic policies of the government and the central bank is aware of this as it has announced there is going to be another round of recapitalisation.