CBN’s stress test on banks

IN a determined effort to boost confidence in the banking sector, the Central Bank of Nigeria (CBN) is currently conducting stress tests on all the commercial banks in the country. The outcome of the test is expected to be made public in a matter of weeks. This would put to rest the anxieties of bank depositors and build  public confidence in the sector.
Tests of this nature should be thorough and undertaken at regular intervals. We recall the unfortunate forceful takeover of some ailing banks by the CBN in 2009. The affected banks were then on the verge of collapse and only the prompt intervention of the apex bank saved depositors’ funds.
In the current case too, the CBN is set to determine the health of the banks, using the key yardsticks of liquidity ratio and capital adequacy. Depending on the outcome of the tests, it has been said that it may decide on a number of regulatory measures which could include the takeover of weak banks or a change of their management.
It will not be entirely surprising if the CBN decides to take decisive measures on some of the banks.  Only recently, Nigerians woke up to the news of the sack of the top management of one of the banks. This development sent shock waves throughout the banking sector. Since then, anxieties have mounted, despite repeated assurances by the CBN that the bank and the nation’s banking sector in general are healthy.
It would appear, therefore, that the integrity tests on the banks are to further disabuse the minds of the banking public and reassure our foreign investors and partners that our banks are safe.
We call on the CBN to be transparent and even-handed in its current assessment. We are, however, not unmindful of the dilemma of the CBN on this matter. Given our critically challenged economy, the chief financial regulator must find the balance between transparency and the need to boost confidence in our banks. Equities of the banking sector alone constitute over 60 percent of the capital market. We cannot, therefore, allow the institutions to falter.
But, the economy cannot recover from the current recession if our banks are unhealthy. This is why the CBN must invoke all of its regulatory measures and expertise to ensure that the current tests in the banks meet the standards of the industry and pass the due diligence test. The CBN regulators are advised not to shy away from the performance of their statutory responsibilities which, if truth must be told, has been called to question on a number of occasions in the recent past.
The CBN should be mindful of this point and be especially pro-active on matters that could impinge on the integrity of the banks. The results of the stress tests should be published promptly as has been promised. This is the only way to build the confidence of the public in the banks.
The CBN and its examiners charged with this assignment should not fail the nation. The true measure of how well they have done this assignment will be seen in the short and long-term health of our banks and the economy.