Chart 3 : Liquidity Position for Retail Banks in Sierra Leone Based on 2013 Financial Statements
T
he bank should reduce it risk assets to a minimal rate to diminish the risks of unexpected shocks
especially when trading in the short-term.
Guaranty Trust Bank also posted 29%
lending rate against it total assets; it was
evident that the bank bridges its lending
rate advances to customers, which was
over 25% of the net worth of the bank.
GTB generated most of its income on its
lending, however the bank should trade
carefully in order to create a balance between its liquidity position and income
generated.
Ecobank recorded 22% lending rate
against it total assets, which in theory
means the bank was able to operate within
its lending limit. However, the bank needs
to focus on the management of its liquidity and balance it with profitability to avoid
facing any short-term threats or shocks.
UBA traded cautiously on loans & advances and it recorded a very low lending
rate of 2%. It can be deduced from the financial statements that the bank benefited
from clean forex trading and low spending
on administrative costs.
UBA recorded the lowest expense after
Skye bank, which positioned the bank as
the 2nd most profitable bank during the
2013 financial year.
Are The Banks under Stress? The Results Are In…
ltman’s (2000) revised model has
been applied throughout this
test. All 7 banks under review
are tested to ascertain whether there are
any potential failures in these financial institutions. Although the stress test may
vary, the Total Z-Scores is one of the most
simplified models to use and easy to relate
information to. The results of the stress
test show that Skye Bank came the closest
to the 1.24 benchmark. This is due to
the huge share capital the bank maintains
against its liabilities.
A
A reason for these low Z-Scores is the low
capital employed by the banks. However,
the return on capital employed seems to
be encouraging by these banks. With
such performances, the banks need to
consider listing on the Sierra Leone Stock
Exchange so that it can generate more
capital from a wider shareholder base.
The Central Bank of Sierra Leone’s strategy in increasing the banks’ share capital
by US$million every year is a laudable
approach. However, from the z-stress results, domestic banks could benefit further if this annual increment is raised to
US$million.
T
his will ensure efficient liquidity
and capital requirements in order to safeguard and protect domestic banks from systemic risks. Skye
Bank would have been the only bank to
pass the stress test provided that its retained profit was positive. Skye Bank has
the large