It also reported that two other banks were close to being insolvent.
The investment bank said the Nigeria’s banking industry “is experiencing a full-blown financial crisis” as failed fiscal and monetary policies had led to a credit crunch.
The stress test identified the undercapitalised banks as First Bank of Nigeria, Unity Bank Plc, Diamond Bank Plc, Skye Bank Plc, FCMB Group Plc, Sterling Bank Plc and Fidelity Bank Plc.
In an emailed note on Monday, analysts at the investment bank and brokerage, Jaap Meijer and Tarek Sleiman, said capital adequacy ratios in Nigerian banks were set to worsen because of the depreciation of the naira and huge non-performing loans, Bloomberg reported.
“Our acid test reveals seven undercapitalised banks” with a deficit of as much as N1tn ($3.2bn) in the financial system,” Meijer and Sleiman said.
“Unity Bank and Skye Bank are close to being insolvent, while lenders, FBN Holdings Plc and Sterling Bank Plc, will need a dilutive capital hike,” they added.
The affected banks reacted to the report on Monday, saying there was no iota of truth in the report.
The spokesman for First Bank, Mr. Babatunde Lasaki, said, “First Bank is not undercapitalised. We are still within the industry regulatory threshold. This is their opinion. Our position has been published in our half-year report; it is not the one from an investment bank or a speculative report. Our Q3 report will soon be published.”
Also reacting, a spokesman for Diamond Bank, Ikechukwu Mike Omeife, said, “Our bank is strong. Our capital-adequacy ratio and non-performing loans are within the statutory requirements.”
A top source at the Unity Bank said the bank was still meeting its obligations.
The source, who did not want to be quoted, said, “Our financial position has been enhanced. We have just moved our head office to Lagos in order to be closer to the market and retail market. All these strategic investment decisions have shored up market confidence in the bank.”
Similarly, a top official of Skye Bank, who spoke on condition of anonymity, said the bank was not close to being insolvent.
The source said the Central Bank of Nigeria had issued a statement, stating that the bank was not distressed.
To create a capital buffer, Sterling Bank is planning to issue a N27bn bond and “if the interest rate looks better, we will do it this year,” the Sterling Bank Chief Financial Officer, Abubakar Suleiman, told Bloomberg.
The spokesman for FCMB, Mr. Diran Olojo, could not comment immediately.
Fidelity Bank did not give any response on the development.