• Saturday, May 25, 2024
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Analysts welcome CBN move to direct banks recapitalisation

Analysts have commended the Central Bank of Nigeria (CBN) after the apex bank said it would be directing banks to increase their capital in preparation to serve an envisioned $1 trillion economy.

The CBN needs to evaluate the adequacy of the banking industry to serve the envisioned larger economy, according to Olayemi Cardoso, governor of the CBN who spoke Friday at the bankers’ dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos.

Nigeria’s new government, as outlined in the widely circulated Policy Advisory Council report on the national economy earlier this year, has set an ambitious goal of achieving a Gross Domestic Product (GDP) of $1.0 trillion over the next seven years, with clearly defined priority areas and strategies.

Read also CBN directs banks to increase capital

“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,” he said.

Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said, the recapitalization will allow the banks to be well capitalised to continue to support the economy given the recent changes in the economy.

According to him, it will also position the industry well to take advantages of the expected growth in the economy. In addition, the recapitalisation process will attract foreign investors into the banking industry through Foreign Direct Investments(FDIs), therefore helping the country to drive part of the much needed long term foreign currency investment into this important and attractive sector to stabilise the value of the Naira.

“The banking industry will also use the opportunity to pitch to select foreign investors to drive the investments,” he said.

For Muda Yusuf, chief executive officer, Centre for the Promotion of Private Enterprise, it is a welcome development because banks’ capital has been eroded.

He said minimum capital requirements of the banking industry need to be reviewed in the light of the considerable loss of value amid depreciating domestic currency.

During the banking consolidation exercise of 2004, the minimum capital requirements for banks was raised from N2 billion to N25 billion. The revised capital requirement was an equivalent of $187 million.

“Today the same N25 billion is an equivalent of just $32.5 million. This is a clear indication of the phenomenal erosion of the capital base of the banks. Recapitalization of the banks has therefore become imperative. It is important to ensure that the capital base of banks can support their current exposures in the interest of the stability of the financial system,” Yusuf said.

Read also: CBN directs banks to increase capital

Cardoso said Nigeria’s financial sector has demonstrated resilience in 2023, with key indicators of financial soundness largely meeting regulatory benchmarks. Stress tests conducted on the banking industry also indicate its strength under mild-to-moderate scenarios of sustained economic and financial stress, although there is room for further strengthening and enhancing resilience to shocks.

“Therefore, there is still much work to be done in fortifying the industry for future challenges,” he said.

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