• Thursday, April 18, 2024
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CBN’s recapitalisation exercise will revolutionise the banking industry, transform the economy – Agusto&Co

No more foreign currency collateral for naira loans — CBN

The Central Bank of Nigeria’s recapitalisation terms has been described as a needed drive capable of revolutionising the banking sector and making the government’s goal of attaining a $1 trillion economy by 2026 feasible.

This position is contained in a report released by Agusto&Co, a global credit rating and research firm, on Tuesday.

Following the upward review of the minimum capital needed to operate a bank in Nigeria by the CBN, analysts at the credit rating firm stated that the directive will see the size of the banking industry increase significantly with the sector attracting more investments required to boost their capital base.

“We anticipate a revolution in the banking industry which could exceed those witnessed during the 2004 exercise. New shareholders and institutional investors are expected to take advantage of the available opportunities.

“Given the low valuation of Nigeria banks (in USD terms), the relatively good performance of the banks and the appetite for banking licences as reflected in the number of applications pending with the CBN, we believe the Industry should be able to attract the needed investments to shore up the capital base,” it said.

The Lagos-based firm noted that with the review of the minimum capital base, mergers and acquisitions of banks that cannot meet the requirement is unlikely.

“We also anticipate some mergers and acquisitions similar to 2004 when the regulation-induced recapitalisation exercise reduced the number of banks to 25 from 89,” analysts at Agusto&Co said.

By jacking up the capital requirements for banks, the apex bank is on the mend to provide adequate capital buffers to support the $1 trillion Gross Domestic Product (GDP) envisioned by the Bola Tinubu administration by 2026.

According to the report, attaining the trillion dollar economy through the recapitalisation exercise will address the declining consumer purchasing power, strengthening government institutions, de-risking some sectors of the economy, and reducing bureaucratic bottlenecks.

“The recapitalisation exercise is necessary to provide the funding needed to drive the $1 trillion economy the current administration is trying to achieve,” it said.

“Based on the experience of the last regulatory-induced recapitalisation exercise, we believe new sectors will be created while some existing industries will be expanded as the banks seek to generate returns for the enlarged capital base,” it added.

The major focus of the recapitalisation terms is to ensure that Nigerian banks have the capacity to take bigger risks and stay afloat in times of trouble, support different sectors of the economy, and improve confidence in the banking system.

The CBN raised the minimum capital base for banks with international authorisation at N500 billion.

The Abuja-based bank also increased the minimum capital base for commercial banks holding national authorization to N200 billion, and for those with regional authorization to N50 billion.

Merchant banks now have a minimum capital requirement of N50 billion, while non-interest banks holding national and regional authorizations must adhere to new minimum requirements of N20 billion and N10 billion, respectively.

While the CBN’s recapitalisation exercise would strengthen the banking industry, support the rejuvenation of the economy and attract foreign currency inflow, analysts at Agusto&Co noted that the apex bank must ensure that the process is not used as a platform for laundering illicit funds.