As Nigeria plans to recapitalise the Bank of Agriculture (BoA) to increase lending to the agricultural sector and serve as money deposit bank for farmers, analysts are doubtful of the bank’s capacity to raise N1 trillion for the partial privatisation of the bank.
Danbala Danju, managing director of BoA, had told BusinessDay that the agricultural bank was looking at institutional investors and farmers for the planned N1 trillion required for the recapitalisation, but failed to disclose the ownership structure.
Danju had noted that the decision on the commencement date and modality of operations would be made known to the public before the end of the year by the country’s agricultural ministry.
“The N1 trillion for the partial privatisation of BoA will come from farmers and institutional investors. We have 23 million farmers that are expected to register and each will pay a registration fee of between N5, 000 and N10 000 depending on its size,” Danju told BusinessDay in a telephone interview.
Highlighting the proposed method to ensure that even the smallholder farmers are captured in the recapitalisation exercise, the bank’s managing director told BusinessDay that farmers would be categorised into cooperatives.
“Smallholder farmers will be formed into cooperatives which will allow them to participate. Inputs, extension services, and loans will be given to them,” Danju said.
He stated that the recapitalisation of the bank would help to capture the unbanked in rural areas.
Heineken Lokpobiri, minister of state for agriculture and rural development, said recently at a tour of Tritons Group’s farm projects that the bank is collaborating with Rabo Bank of Netherlands to carry out the recapitalisation.
“By the time the BoA will be recapitalised in collaboration with Rabo Bank of Netherlands, the issue around funding for the sector will be addressed,” Lokpobiri said.
However, analysts note that the plan to get 23 million farmers to pay a minimum of N5, 000 each can only raise between N115 billion and N230 billion, assuming they are all able to pay the minimum of N5, 000 registration fees, expressing doubt over the BoA’s claim that institutional investors will fund the rest.
“The institutional investors will not invest in a project like this. But the non-commercial institutional investors are going to invest, because many of them already have funds set aside to promote agriculture,” Johnson Chukwu, managing director and chief executive officer, Cowry Asset Management Limited.
“The modality of the operations of the BoA must be adjusted to make it attractive for the investors to invest,” Chukwu said.
According to him, the N1 trillion proposed by the bank is more than 10 percent of Nigeria’s national budget, which is quite huge, stressing that it would naturally take time to get that kind of money.
Other analysts say commercial institutional investors may not be interested in the proposed privatisation since it is going to be partial, stating that the partial privatisation might be an impediment to the resuscitation of the bank.
“Partial privatisation will be a clog in the wheel of the recapitalisation efforts. One trillion naira is not a small amount of money, so they have to get it right from the point of view of regulation,” said Sammy Chidoka, director-corporate finance and advisory, Planet Capital Limited, a Lagos-based investment bank.
“Will the bank be regulated as every other bank or will it be regulated the same way as the Bank of Industry (BoI) which is being controlled by the government?”
Chidoka said that the bank needs to provide a plan for enhanced liquidity post- recapitalisation, adding that even when the BoA gets the N1 trillion, it should be able to leverage equity and work hard for additional liquidity in order to be able to grow the agricultural sector.
Femi Ademola, executive director, cooperate finance and advisory, BGL, said, it is a good initiative, however it should not about talk but action. Ademola said the N1 trillion would take a long time to raise because it is huge.
The BoA is owned by the Federal Government, with the Central Bank of Nigeria (CBN) having 40 percent share capital and Federal Ministry of Finance Incorporated (MFI) with the remaining 60 percent, according to information stated on BoA website. It has an authorised share capital of N50 billion.
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