Mr Olayemi Cardoso, Governor of the Central Bank of Nigeria (CBN) has disclosed plans to implement a new round of banking recapitalisation for Deposit Money Banks (DMBs) in the country.
TheNewsGuru.com (TNG) reports the planned recapitalisation means that DMBs will be required to raise additional capital to meet the demands of Nigeria’s economy.
This may result in merger of banks in the country or outright acquisition of smaller banks by big players in the sector; for DMBs that will not be able to meet the threshold to be determined by the CBN.
Recall the CBN had on July 6th 2004 announced the recapitalization of banks in the country from N2 billion to N25 billion with effect from 31st December, 2005.
The initiation of increasing the banks minimum capital base to N25 billion in 2006 led to a remarkable reduction in number of banks from 89 to 24. Some of the banks merged and some were completely taken over by the stronger banks.
Mr Cardoso had noted that President Bola Ahmed Tinubu in his Policy Advisory Council report on the nation’s economy, had set an ambitious goal of achieving a Gross Domestic Product (GDP) of one trillion dollars by 2030, with clearly defined priority areas and strategies.
While CBN is yet to officially announce the recapitalization and details of the resultant merger and acquisition are yet to be conceived, Mr Cardoso said it was important that banks have a role to play in the anticipated one trillion dollars Nigerian economy by 2030.
Speaking at the 58th Annual Bankers’ Dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) on Friday night in Lagos, the CBN Governor said going by the huge developmental role the apex bank would want the banks to play in the next seven years, it had become imperative to demand their recapitalisation.
“The administration has already commenced this journey through fiscal reforms, including the removal of petrol subsidies and the unification of the foreign exchange market rate.
“Considering the policy imperatives and the projected economic growth, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy.
“It is not just about the stability of the financial system in the present moment, as we have already established that the current assessment shows stability.
“However, we need to ask ourselves: Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future? In my opinion, the answer is “No!” unless we take action.
“Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital,’’ he said.
Economist lauds planned banks recapitalisation
Meanwhile, an economist, Prof. Uche Uwaleke, says the idea of recapitalisation of banks is a welcome one.
Uwaleke, President, Association of Capital Market Academics of Nigeria, said this in an interview on Saturday.
He said, “It goes without saying that capital is needed to finance big-ticket projects, especially when the government is targeting a one trillion dollar economy in a few years’ time.
“Also, if the experience of 2005 is any guide, the recapitalisation exercise is likely to rejuvenate the stock market.
“But I think the strategy should be somewhat different from the approach adopted in 2005. It should be more about incentives than coercion.
“Some DMBs (especially many in the FUGAZ category) are already making efforts to increase their capital base.”
He said that the CBN could use prudential guidelines to strengthen the present tiered arrangements.
Uwaleke said the use of the CAR (the ratio of a Bank’s capital to risk weighted assets) was a good example.
“The apex bank can also use differential cash reserve requirements as well as preferential participation in the forex market for well capitalised banks as some of the incentives.
“For whatever it is worth, smaller banks playing at the regional level should not be regulated out of existence,” he said.