With Capacity to Boost Deposits Enhanced, Zenith Bank Leads Banking Sector With 69.9% Liquidity Ratio

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With its customers deposits maintaining an upward trend, Tier-one lender, Zenith Bank Plc lead the Nigerian banking sector with 69.9 per cent liquidity ratio as at half year ended June 30, 2021 results.

Under the current guidelines, the Central Bank of Nigeria (CBN) requires that banks maintain minimum liquidity ratios as follows: Deposit Money Banks (DMBs): 30 per cent; merchant banks: 20 per cent; and non-interest banks: 10 per cent.

Liquidity ratios are a class of financial metrics used to determine a bank’s ability to pay off its short-term debts obligations. It is the total specified liquid assets of a bank divided by total current liabilities.

Analysis of results of deposit money banks in the country showed that the bank in 2020 financial year reported 66.2 per cent liquidity ratio.

The bank had while commenting on the development stated, “Prudential ratios such as liquidity and capital adequacy also remained above regulatory thresholds at 69.9per cent and 22.0per cent respectively.”

Analysis of the bank’s results for the period under review sowed that it increased total customer deposits by eight per cent to close June 30, 2021 at N5.77 trillion from N5.34trillion it closed in 2020 financial year to demonstrate growth in the bank’s market share.

Out of the 10 investigated banks by THISDAY, Wema Bank Plc has a liquidity ratio below the regulatory requirement.
The bank closed H1 2021 with a liquidity ratio of 25.1 per cent as against 30 per cent it closed 2020 financial year.
The Monetary Policy Committee of the CBN had disclosed that the liquidity ratio in the banking sector was above prudential limits at 41.3 per cent as at June 30, 2021.

Commenting on the development, Prof. Hassan Oaikhenan of the Department of Economics, University of Benin expressed that customers deposits is very critical in determining a bank’s liquidity ratio.

According to him, “A bank with higher capacity to boost deposit will have higher liquidity ratio than the one with lower deposit mobilisation capacity. We know Zenith bank has covered the market shares than Wema Bank in terms of deposit mobilization.”
Speaking in the same vein, the Vice President, Highcap Securities, Mr. David Adnori stressed that the statutory required liquidity ratio for banks is 30 per cent, maintaining that for Zenith Bank to have a liquidity ratio above 60 per cent is an interesting development.

He explained further that. “If a bank has investment opportunities in the economy, a major portion of that fund that constitutes liquidity ratio is expected to be invested in such investments. That will yield income for the bank for increase shareholders returns on investment and expand in branches network.

“The bank can invest in government bond, treasury and extend credit to customers. There are other areas of investment. However, if a bank has not done all these, it means Zenith Bank is holding a lot of liquid assets in their coffer.

“Is either the management does not have confidence in the operating environment or they are not confidence if they plow into an investment, they yields will be justifiable. It is unexpected for banks to have a very high liquidity ratio but it must be maintained above the regulatory requirement which is 30 per cent.”

On Wema Bank with a liquidity ratio of below 30 per cent, Adnori stated that the ratio is below CBN’s requirement and it is a warning signal

“If a bank liquidity ratio is below regulatory requirement it means their cover for short-term deposit liabilities is very low and it means short-term deposit the bank carries has been seriously eroded. The bank has to look for more liquid assets to buff up its liquidity ratio.”

Analyst at PAC Holdings, Mr. Wole Adeyeye expressed that higher liquidity ratio means a bank stands a chance to its immediate obligations.

On Zenith bank, he said: “It is expected for the bank to have liquidity ratio above 60 per cent due to its nature of businesses and people that are doing business with the bank. The bank focused more on corporate than individual lending. It is expected for bigger banks to have a very strong liquidity ratio.”

On its part, Guaranty Trust Holdings Company Plc (GTCO) reported liquidity ratio closed H1 2021 at 44.71 per cent from 38.9 per cent.

The bank explained that: “Despite the pressure from COVID-19 pandemic and regulatory debits, the Group maintained average liquidity ratio of 40.71 per cent.”

Further checks revealed that Access Bank reported a liquidity ratio of 50.7 per cent in H1 2021 from 46 per cent in full year ended December 31, 2020 as United Bank for Africa (UBA) recorded 58.3 per cent liquidity ratio in H1 2021 from 44 per cent recorded in 2020.

The apex bank had assured that deposit money banks in the country have remained stable, robust and resilient despite the disruptions by Covid-19 pandemic.

It had said it would continue to continuously monitor the bank to detect early vulnerabilities to ensure pre-emptive action as well as apply some regulatory measures for the growth of the sector.


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