Nigeria’s Micro-Finance Banks (MFBs) continue to grapple with challenges, as the Central Bank of Nigeria (CBN) disclosed that the average Capital Adequacy Ratio (CAR) of the sub-sector fell to 32.58 per cent last year from 58.09 per cent in 2016.
CAR is the ratio of a bank’s capital to its risk. The apex bank tracks a lender’s CAR to determine whether it has the capacity to absorb a reasonable amount of loss.
According to the CBN’s 2017 Annual Report released last Thursday, the routine and target examination of 793 MFBs conducted by the regulator last year also revealed that the sub-sector’s average portfolio-at-risk increased to 21.2 per cent at end-December 2017, from 18.9 per cent at end-December 2016, indicating deterioration in the quality of risk assets.
The study further showed that industry average Return On Assets (ROA) and Return On Equity (ROE) declined to 3.9 per cent and 7.6 per cent at end-December 2017, respectively, from 4.2 per cent and 10.7 per cent at end-December 2016.
It, however, noted that there was an improvement in MFBs’ average liquidity ratio during the review period, as this increased to 91.7 per cent at end-December 2017, above 89.4 per cent at end-December 2016.
Other highlights of the report include its confirmation that MFBs continue to contend with issues such as: “Weak knowledge and lack of institutional capacity; poor asset quality; poor corporate governance and insider abuse; mission drift and high expenditure profile.”
In order to address the challenges, the banking watchdog said it ensured that MFBs, last year, adopted the redesigned curriculum for the Microfinance Certification Programme (MCP), to impart requisite knowledge and skills, as well as, inculcate the concept of banking for the poor, low income and the vulnerable groups.
In addition, the CBN said it carried out, “closer and intense supervision”, as well as, the implementation of its, “zero tolerance for infractions and stiff sanction regime to instill market discipline.”
Interestingly, the CBN pointed out : “Notwithstanding the deterioration in the Key Performance Indicators (KPIs) of the MFBs, the industry average CAR and liquidity ratio were well above the regulatory minimum of 10.0 and 20.0 per cent, respectively. As the economy continues to improve, the ROA and ROE are likely to improve on account of expected reduction in portfolio-at-risk (PAR) due to improved loan repayments.”
There were speculations earlier this year that the CBN was set to increase the minimum capital requirement for MFBs.
Indeed, the issue was said to have been discussed at a meeting of Committee of MFBs held in Lagos last year.
Currently, under CBN rules, Unit license MFBs require N20 million minimum paid up capital to operate; State MFBs need N100 million minimum paid up capital to operate while National MFBs require N2 billion as minimum paid up capital to operate.