25 June 2019

Nigeria: Experts, LCCI React As CBN Reveals Plans to Raise Banks' Capital Base

The Central Bank of Nigeria (CBN) has revealed plans to raise the capital base of deposit money banks as their capital base is now weak.

The CBN Governor Godwin Emefiele disclosed this, yesterday, in Abuja during the unveiling of his five-year policy thrust of CBN as his second tenure gets underway.

Whilst the CBN governor did not give the specific timeline that this recapitalization might happen, he however said it will happen in less than five years from now.

He also didn't say how much the banks will be required to capitalize to. But trends analysis from our correspondent suggests the new capital base for the deposit money banks might be raised to about N75 billion. The banks currently have a capital base of N25bn.

"In the next five years, we intend to pursue a programme of recapitalizing the banking industry so as to position Nigerian banks among the top 500 in the world," the CBN governor said.

"Banks will therefore be required to maintain higher level of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system," Mr. Emefiele explained.

He also explained that "it was CBN Governor Soludo in 2004 that did the last recapitalisation and moved it from N2bn to N25bn."

"And I must commend that effort because it resulted in repositioning Nigerian banks not only in Africa but among the top banks in the world in terms of capitalization. It also deepened the banking industry's capacity to do large ticket transactions and those are some of the things we badly need today. If you relate N25bn with 2004 exchange rate which was around N100/$1, it will be around $200 million. Today if you relate N25bn at N360/$1, you will see that it is substantially even lower than $75 million" he explained further.

"What we are trying to say is that the capitalization has weakened substantially and it is time for us to recapitalize the banks again. It is a policy thrust which will be discussed at the committee of governors meeting and of course a framework for the recapitalisation of Nigerian banks will be unfolded for the whole world to see," he assured.

Speaking on other areas the CBN intends to focus on going forward, he said the bank is developing robust security architecture to protect bank customers.

"With the rise in digital payments and cyber security threats, we will develop a robust mechanism that will help ensure that the necessary safeguards are put in place by banks and financial institutions to protect against loss of data, fraud and cyber incursions in their respective systems," he assured.

On cashless policy, Emefiele said "we will reinvigorate our efforts at driving the cashless initiative across the country, due to the immense efficiency gains that will be derived from it, and the impact it could have on our financial inclusion drive."

He added: "We will continue to work to safeguard the stability of our financial system, while supporting the development of a payment system infrastructure that will improve access to credit for all eligible Nigerians," he said, adding that "nevertheless, additional emphasis will be placed on supporting greater growth of our economy and in reducing unemployment through targeted interventions in the agricultural and manufacturing sectors."

Fix N100bn capital base for banks, experts tell CBN

But speaking with Daily Trust yesterday, Prof. Uche Uwaleke, a professor of capital market and the Chartered Institute of Bankers of Nigeria (CIBN) Abuja branch, said the decision by the CBN to raise the capital of banks was a good development.

Specifically he said a recapitalization will be positive for the Financial System Strategy (FSS) and the Nigerian economy even as he advocates at least N100bn capital base for tier one banks.

He noted that if the recapitalisation eventually happens, Nigerian banks will be bigger and be able to play a catalyst role in Nigeria's economic growth.

Prof. Uwaleke also noted that the recapitalisation will come with better capital adequacy ratio for the banks.

He also said the banks have the option of approaching the capital markets to raise funds to shore up their capital base but those who can't raise funds should merge.

Prof. Uwaleke also noted that 10 big banks will add more value to Nigeria than many small banks.

He advised the banks to be proactive in raising capital and investing in technology to drive deposits and not wait to be caught napping by the CBN.

Also commenting, a onetime managing director/CEO of one of the tier two banks who craved anonymity also welcomed the recapitalisation exercise.

He said already, the tier one banks, who have been classified by the CBN as systematic important banks (too big to fail banks) because of the size of their customers and staff have in excess N50bn capital base as required by the CBN.

He also said these banks also maintain capital adequacy ratio of at least 15 percent so they should be able to raise more funds he said.

However, Mr Johnson Chukwu, Chief Executive Officer at Cowry Asset Management Limited said: "It all depends on which of the banks the central bank is looking at. The international banks have dollar denominated balance sheet and are therefore expected to carry a higher capital requirement."

He said if the CBN resolve to strengthen the financial system, weak financial systems would be encouraged to recapitalise or merge and that will reduce the systemic risk in the system

Recapitalisation will strengthen capacity of banks-LCCI

On its part, the Lagos Chamber of Commerce and Industry (LCCI) said yesterday that the proposed recapitalisation of Nigerian banks will further strengthen the capacity of banks to support the economy better.

The Director General, Muda Yusuf, said the idea of recapitalization of banks is not a bad idea.

"It would strengthen the capacity of banks to support the economy better, especially with regards to large projects. It will also be beneficial in bolstering the capacity of the banks to withstand macroeconomic shocks", he said

He however, said the recapitalization programme should be undertaken in the manner that would not inflict disruptions to the banking system.


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