• Wednesday, May 29, 2024
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Scale recapitalisation with international exposure – Bank directors

Scale recapitalisation with international exposure – Bank directors

Mustafa Chike-Obi, Chairman, Board Bank Directors Association of Nigeria (BDAN) has said that banks recapitalisation requirement should be to the degree to which it operates internationally.

He said banks that are doing a minimal amount of business internationally should not be required to raise the same amount as banks doing vast business internationally.

“If you’re doing 10 percent of your business internationally then you need 10 percent increase in capital, if you’re doing 50 percent then 50 percent increase in your capital,” he said.

He said this during an interview with Channels TV titled ‘Impact of CBN Monetary policy on Nigeria’s Economy’ on Wednesday.

Last month the Central Bank of Nigeria (CBN) announced a ten-fold jump in minimum capital requirements for banks, nearly two decades since the last exercise.

The minimum capital requirement was jacked up to N500 billion for those with international authorisation, N200 billion for commercial banks with national authorization, and N50 billion for those with regional authorisation.

Eight banks with international operations are expected to raise their capital requirements of N500 billion, which includes all tier one banks, Fidelity Bank, FCMB and Union Bank.

Currently they all require over N200 billion to meet this requirement.

Choke-Obi said that it’s the directors responsibility to raise capital and they were not consulted. He also said asking banks to raise N4 trrillion in the next two years will be very difficult.

“Given where the risk free rate is, around 30 percent, you require about 35-40 percent return on capital to invest in banks. That’s a little more risky than treasury bills,” he said.

“So they have shrunk the banking space both in terms of people that can afford those interest rates and the amount of money that and the amount of money that’s available for the deposit,” he said.

The chairman said that the banking business will shrink in the next couple of years, “and that in that shrinking business you want people to bring N4 trillion worth of capital. It’s a bit of a contradiction.”

Paul Alaje, an economist, said on the program that recapitalisation is very important.

“I can not say that banks were doing as well as they used to. Maybe the top 10 banks might be doing fairly okay but most of the other banks it’s important for them to recapitalise,” he said.

On the hike in interest rates by 600 basis point Alaje said the increase was too much.

After the initial 400 basis point increase to 22.75 percent, The Monetary Policy Committee (MPC) last month raised the Monetary Policy Rate (MPR) to 24.75 percent, representing a 200 basis points increase.

“I’m not saying the CBN shouldn’t have increased the MPR, but 600 bps in 5 weeks is too much. The cost of hiking is more than the benefit of the increase,” he said

Similarly, Abdulrasheed Yerima, president Nigeria Association of Small and Medium said that the rate hike would affect investment in the MSME ecosystem.

“It will affect startups trying to start new businesses. it will also affect expansion,” he said.

He said that the government should have waited for MSMEs to adjust to this high cost of energy and high cost of transportation,

“They should have allowed the naira to stabilize because some of us import our raw materials,” Yerima said.