80% of Nigerian Banks Have Met Basel II Requirement

Of recent the Central Bank of Nigeria released report that more than 80 per cent of banks in the country have the Basel II capital adequacy requirement even as it defended its recent circular on restrictions on dividend payout by banks.

Basel II is the second of the Basel Accords, (now extended and effectively superseded[clarification needed] by Basel III), which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. Basel II, initially published in June 2004, was intended to create an international standard for banking regulators to control how much capital banks need to put aside to guard against the types of financial and operational risks banks (and the whole economy) face. One focus was to maintain sufficient consistency of regulations so that this does not become a source of competitive inequality amongst internationally active banks. Advocates of Basel II believed that such an international standard could help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. In theory, Basel II attempted to accomplish this by setting up risk and capital management requirements designed to ensure that a bank has adequate capital for the risk the bank exposes itself to through its lending and investment practices. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability. Politically, it was difficult to implement Basel II in the regulatory environment prior to 2008, and progress was generally slow until that year's major banking crisis caused mostly by credit default swaps, mortgage-backed security markets and similar derivatives. As Basel III was negotiated, this was top of mind, and accordingly much more stringent standards were contemplated, and quickly adopted in some key countries including the USA.


CBN’s deputy director, Banking Supervision Department, Kevin Ibedo noted that most banks have complied with the Basel II requirement, stating that over 80 per cent of banks which submitted their Internal Capital Adequacy (ICAP) have complied.

Explaining the rationale behind the recent circular of the apex bank, which restricted banks without enough capital from paying dividend, Ibedo said “we are saying rather than spend all your money today, make profit and have retained earnings share a little and beef up your capital so that they can meet up with the Basel II capital.”

“We did a survey and discovered that banks do not have adequate capital. There is a requirement called ICAP which they submit to us, we have been reviewing their reports so based on it we moved the deadline to October,” said Ibedo.

“So we are reviewing the capital raising and that is the reason we raised the circular.“What we review is their dividend policy whether it is realistic and as regulators we want to ensure that the banks in their dividend policy make effort to retain some of their profit.”

However, the national coordinator of the Independent Shareholders Association, Sunny Nwosu, called on bank directors as well as the CBN to review the circular so that investors in the banking industry can have returns on their investments.