Mustapha Chike-Obi, chairman, Bank Directors’ Association of Nigeria, on Friday lauded the Central Bank’s latest bank recapitalisation policy but warned that poor execution could scuttle the gains.
Chike-Obi spoke at a roundtable assessing the bank recapitalisation policy organised by BusinessDay Media Limited in Lagos. He noted the 2004/2005 recapitalisation exercise was a good policy but was poorly implemented due to governance issues.
The CBN on March 28 announced new capital requirements for Nigerian lenders from commercial to merchant banks. The last such exercise was in 2004/2005, two decades ago.
During the recapitalisation of 2004/2005, a surge in liquidity occurred without adequate investment opportunities, leading to an asset bubble and subsequently the dismissal of several bank chiefs.
“A good policy that brings bad results means execution was problematic along the way. We are seeing bad results from good policies and nobody is taking responsibility for that. We should celebrate the policy and the results,” he said.
Speaking further, he said, “I encourage more engagement from the CBN, it’s better if they talk to the banks about why retained earnings are not considered at this point in time.
“I think there should have been better engagement, some things need to be explained. Why does an international licence require more capital than a national licence? If you’re diversifying across nations, does that mean more risk? If I have one branch in London as Fidelity, am I in the same boat as a UBA who has many branches in many countries?” Chike-Obi said.
The CBN said all international banks should move their capital to a minimum of N500 billion; national banks up to a minimum of N200 billion; regional banks (N50 billion); merchant banks (N50 billion) and N20 billion for non-interest banks operating nationally and N10 billion for those operating regionally.
In his keynote address, Ike Chioke, Group managing director Afrinvest (West Africa) Limited, noted that “after the announcement of the last recapitalisation we had 89 banks operating with N311 billion total capital, which was equivalent to $2.4 billion at the time.
“We ended up by December 31 2005 with 25 commercial banks each with a minimum of 25 billion and a total capital of N932.0 bn.
“The interesting thing is that only six banks achieved the mandate through increased capital while 19 banks through mergers and acquisitions,” he said.
He said that commercial banks have a capital gap of N3.7 trillion to meet the capital requirements while the merchant banks have N200.6 billion.
There is some scepticism that banks will take on significantly more lending to the private sector once their minimum capital is raised given the risk in an economy battling with accelerating inflation and a severe cost-of-living crisis.
“We can still lend, but we’re limited in how much. As a banker, it’s more attractive to buy Treasury bills at 25 percent than to lend to people,” Chike-Obi said.
“There’s a reluctance of banks to lend. I would have reduced CRR, and told banks they can’t buy more than 10 percent of T-bills. This will force them to lend people.
He also said the notion that banks give people money to buy FX is not true.
“People only buy FX because it makes sense to them. It’s a rational economic decision. What we have to do is to make it more rational to hold assets in naira than in dollars. I’ll raise short term rates to 30%, and prevent banks from having 10 percent in T-bills.
“What we have doesn’t allow growth and banks aren’t lending. I believe GDP growth will be lower in the fourth quarter than predictions. The raise in capital is necessary because the FX adjusted basis has gone down. So, the recapitalisation isn’t as massive as it looks from the outside,” he said.
