LCCI urges CBN to prevent ‘too big to fail’ banks

Lagos Chamber of Commerce and Industry (LCCI), the Premier chamber of commerce in Nigeria, has urged the Central Bank of Nigeria (CBN) to strengthen its banking supervision to avoid ‘Too Big to Fail’ banks.

According to a statement by the chamber, LCCI appreciates the intellectual humility of the CBN governor in admitting the errors or mistakes of the past, particularly in the areas of corporate governance failures, diminished institutional autonomy of the CBN, deviation from the core mandate of the Bank, and unorthodox use of monetary tools and foray into fiscal activities under the cover of development finance activities.

“As we advance, we challenge the current CBN team to ensure professionalism and integrity and rebuild the trust of the general public. On recapitalisation of banks, we commend the plan of the apex Bank to review the minimum capital base of banks due to consistent devaluation of the naira, which has eroded the capital base of banks, attracted significant investment into banks as well as increased the capacity of banks to provide the required support for the economy,” the statement said.

It added that given the sensitivity of monetary policy and price stability, we urge the CBN to ensure transparency and synergy between monetary and fiscal authorities and effectively communicate significant changes in policy direction.

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“We caution the CBN to strengthen its banking supervision to avoid “Too big to fail” banks,” LCCI said.

Last Friday, Yemi Cardoso, governor of CBN, said the CBN would be directing banks to increase their capital to serve a $1 trillion economy to be achieved by 2030.

“We need to ask ourselves: Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a one trillion dollar 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,” he said.

Nigerian banks’ capital adequacy ratio, which measures a bank’s financial strength by using its capital and assets, declined to 11.2 percent in June 2023 from 13.0 percent in May, though still within the prudential requirement of between 10 percent and 15 percent.

“Over the years, the chamber has consistently expressed concerns about the implications of high inflation, high-interest rate and unstable exchange rates on businesses and households,” Chinyere Almona, director general of LCCI, said.

She added that LCCI is aware of the enormous challenges and the uphill task before the CBN in ensuring macroeconomic stability and restoring investors’ confidence.

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“However, we note the inconsistencies between the federal government’s vision of achieving a $1 trillion economy in the next six years and the medium-term expenditure framework (MTEF),” she added.

According to Almona, the macroeconomic projections in the MTEF state that the economy will grow by 3.76 percent, 4.22 percent, and 4.78 percent in 2024, 2025, and 2026, respectively.

“We note that the projected growths are sub-optimal to achieve a $1 trillion GDP by 2029, which implies an average growth of 21 percent over the next six years.”

LCCI recommends that the CBN adopt the right policy mix to control high inflation effectively and ensure the stability of the exchange rate in order to support growth and job creation.

“Furthermore, we stress the need for the Bank to be committed to promoting integrity, good corporate governance, and the highest ethical standards.”