Kayode Ekundayo
3 November 2008
Lagos — The Governor of the Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, has said that the consolidation of banks in 2004, helped to save Nigerian banks from collapse as the world faces financial meltdown.
Soludo said this at an interactive session with journalists in Lagos at the weekend.
He said Nigerian banks are strong, healthy and robust with shareholders funds of about N2.7 trillion as at September 30. This is about 821.50 per cent higher than the N293 billion cumulative funds of the 89 existing players pre-consolidation.
"I want to tell you gentlemen, if we did not do what we did in four year ago, our banking system would have been wiped away with the current global financial crisis. What the rest of the world is doing now is what we did over four year ago and that has made our banking sector to remain strong and robust", he said.
He said the current global financial crisis entered the Nigerian economy through the Nigerian stock market when institutional investors started to divest their investment, while banks in an attempt to minimize their risk exposure suspend lending and started calling for their credit.
"In the light of global economy, what caused share price meltdown was as a result of panic by the investors and the banks. First, institutional investors which constitute about 15 per cent of the market divested their investments. Some even sold out rightly in order to service their loans in their countries and also local investors who have never experience market meltdown panic and started selling their stocks", he said.
The Governor of the apex bank said as a result of the problem, Nigerian banks also stopped lending facilities in order to minimize their exposure to risk and this, he said led to the falling in share price in the capital market.
He explained that CBN has tried to rescue the market but failed, adding that since the market based on speculation and private driven, government will not intervene through bail out measure.
He said the total exposure of the capital market operators to the banks is not up to N900 billion, adding that if the entire exposure to the capital were to be written off (from the shareholders funds), the banks would still have N2 trillion. As such, he added, the banking sector will still be more than two to three times adequately capitalised relative to international requirement.
He said with the level of liquidity, the banking sector will drive the economy out of the global economic crisis, adding that between January and September this year, new credits from the banking system to the private sector stood at N2.2 trillion, out of the total N7.0 trillion.
This, he said, is less than the total industry deposit base of over N9.0 trillion, such that even in the worse case scenario where the entire banks' exposure to the capital market were to go bad, there will still be a strong robust system.
He projected that the credit will grow larger in the coming years, even as the credit of N2.2 trillion is and will continue to be more than the government's annual expenditure profile.
"This sector will drive the economy wherever may be the impact of global crisis. With the falling of crude oil price in the world market, there will be deficit in the coming year and it is the banking sector that will support the economy", he said
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