Liquidity and Capital Adequacy Ratio Computation

09-46236401, 09-46236404 09-46235433, 09-46236418 BSD/DO/CIR/GEN/VOL.02/044 January 29, 2009 CIRCULAR TO ALL BANKS IN NIGERIA LIQUIDITY AND CAPITAL ADEQUACY RATIO COMPUTATION All Deposit Money Banks are hereby notified of the basis for the computation of the Liquidity Ratio (LR) and the Capital Adequacy Ratio (CAR) by the Central Bank of Nigeria as requested by the Chief Executive Officers of banks at the last breakfast meeting on January 6, 2009.

A. THE COMPONENTS OF LIQUIDITY RATIO COMPUTATION LIQUID ASSETS:

N

10130 Cash 10260 Balance held with CBN 10280 Net Balances held with banks within Nigeria 10410 Nigerian Treasury Bills 10420 Nigerian Treasury Certificates 10430 CBN Registered Certificates 10352 Net Inter bank Plac ement with Other Banks 10340 Net Money At Call with Other Banks 10360 Net Placement with Discount Houses 10540 Total Certificate of Deposit 11011 FGN Bonds 10440 Stabilisation Securities TOTAL SPECIFIED LIQUID ASSETS CURRENT LIABILITIES L1. Adjusted Total Deposit L2. Cert. of Deposits Issued[of not more than 18 months of maturity] L3. Net Balance held for other Banks L4. Net Money at call held for other Banks L5. Net Inter bank Placements held for other Banks L6. Net Takings from Discount Houses

A. THE COMPONENTS OF LIQUIDITY RATIO COMPUTATION

L7. Balances Held for External offices Less Bal. held with External offices [if net is negative, ignore] L8. Balances Held for External banks Less Bal. held with External banks [if net is negative, ignore] L9. Bankers Acceptances TOTAL CURRENT LIABILITIES Liquidity Ratio = Total Specified Liquid Assets / Total Current Liabilities * 100

B. Resolving The Differences Between The E-Fass Computation And Computation By Banks

The differences in the computation of the Liquidity Ratio by the CBN and the banks arise from the automatic adjustments made by the e-FASS in respect of three items: balances held with the CBN, net inter bank balances with other banks and deposits. Banks are therefore advised to adjust these items as indicated below:

I. Balances Held With The Cbn:

The current month's CRR should be adjusted against the opening balance in the CRR account. If the current month's CRR is lower than the previous month's balance, the net position should be added to the CBN current account balance but if the current month's CRR is higher, the net position should be subtracted from it.

Ii. Net Inter Bank Balance With Other Banks

The net inter bank balance should be added to either assets or liabilities depending on whether it is positive or negative. When the net balance is positive, it should be added to assets, but when it is negative, it should be added to liabilities.

C. COMPONENTS OF CAPITAL ADEQUACY COMPUTATION Net Value of Item		Amount of Risk
	S/No	Type of Assets	Weighted Assets
		Weight of Risk
	N	N
1	Cash in hand	0
2	Cash reserve with CBN	0
3	Current account with CBN	0
4	Due from Other Banks in Nigeria	0.2
5	Items in the process of clearing	0.2
6	Overdue balance with other bank	1

iii. Adjusted Deposit Total deposits should be adjusted to include likely deposit items imbedded in other liabilities.

7	Due from Other OECD countries	0.2
Due from Other non -OECD
8	countries	0.5
Money at call secured with
9	treasury bills	0
10	Unsecured Money at call	0.2
11	Collateralised placements	0
12	Unsecured Inter bank placements	0.2
Placement Secured with treasury
13	bills	0
14	Unsecured Placement	0.2
15	Treasury bills	0
16	Treasury Certificates	0
Certificates of deposits -
17	Negotiable	0.5
Certificates of deposits -Non
18	Negotiable	1
19	Banker's Acceptances	1
20	Commercial papers	1
21	Other assets (Net)	1
22	Fixed assets (Net)	1
23	OBS: Direct credit substitutes	1
OBS: Certain transaction -related
24	contingent items	0.5
OBS: Short-term self liquidating
25	trade -related contingencies	0.2
OBS: Sale and repurchase agreements and asset sales with recourse	1
26	OBS: Forward asset purchase, forward deposits and partly paid shares and securities	1
27	OBS: Note issuance facilities and
28	revolving underwriting facilities	0.5
OBS: Other commitments (e.g. formal standby facilities and credit lines)	0.5
29	OBS: Similar commitments with an original maturity of up to one year	0
30 31	Under Provision	- 1

32	Other accounts with CBN	0
33	Net loans and Leases	1
34	Investment	1
Promissory notes and other
35	financial instruments	1
Total Risk Assets	1 st TIER CAPITAL	2 nd TIER CAPITAL
	Fixed Asset revaluation reserves
Ordinary Shares	Forex Revaluation reserves
Statuary Reserves	General
Share Premium	Provisions Minority
General Reserves	Interest Hybrid capital
Reserves for SSI	Instruments: Preference
Other Reserves	Shares Debenture
Retained Profit And Loss	Stock
Interim (Half Year) audited Profit approved by CBN Total Capital and Reserves Less: Goodwill & Intangible Assets Unpublished Losses of Current Year Under Provision	Total 2nd Tier
Total 1st Tier Capital	Capital
Total 1st Tier and 2nd Tier Capital Less Investments in Unconsolidated Subsidiaries & Associates Total Qualifying Capital
RISK WEIGHTED ASSETS RATIO (CAR) = Total Qualifying Capital/Total Risk Weighted Assets * 100

Banks are advised to be guided by the above formats and prescribed adjustments in the Liquidity Ratio computation. D. A. N. EKE Ag. DIRECTOR OF BANKING SUPERVISION