Victor EzejaThe Central Bank of Nigeria (CBN) has been advised to ensure that the proposed recapitalisation of banks in the country should be done in a manner that would minimise shocks and disruptions to the banking system and the economy at large.
The Centre for the Promotion of Private Enterprise (CPPE) gave the advice in a statement signed by the CEO, Dr Muda Yusuf.
Prime Business Africa reports that the CBN had last week announced a proposed recapitalisaton policy that requires Tier 1 and Tier 2 banks to raise their capital base to N500 billion and N200 billion respectively. Other categories of banks were mandated to increase their capital threshold to N50 billion (regional commercial banks and Merchant national banks), N20 billion (Non-interest national banks), and N10 billion (non-interest regional banks). They were given a period of 24 months to meet the target with effect from April 1, 2024, to March 31, 2026.
This comes 18 years after the last one done in 2005 during Prof Chukwuma Soludo’s regime as CBN governor.
Currently, the minimum statutory capital requirements for banks are: international Banks – N50 billion, national banks – N25 Billion, and regional Banks – N10 billion.
CPPE commended the CBN for the timeframe given to banks to comply with the policy directive. It said: “This would minimise disruptions and dislocations in the financial system.”
Yusuf, a former Director General of the Lagos Chamber of Commerce and Industry (LCCI), noted the significance of the bank recapitalisation policy in the financial system. According to him, adequate capitalisation helps to ensure the efficiency and stability of the financial system, guarantees the safety of depositors’ funds, and “enhances the capacity of banks to support economic growth through the funding of investments.”
He explained that what made recapitalization imperative and inevitable this time is the soaring inflation which had weakened the value of money over time.
READ ALSO: Why CBN Increases Capital Base For Commercial Banks To N500bn, Merchant Banks N50bn
“The essence is to ensure the safety of depositors’ funds, strengthen the stability of the financial system, deepen resilience of the banking system and reposition the bank to support growth,” Yusuf stated.
The economic expert said reports from the CBN show that Nigerian banks are financially sound and healthy, “But this does not diminish the need for regulatory authority to ensure that this soundness and stability is preserved and improved upon, especially because of the recent macroeconomic headwinds. This, perhaps, is what informed the current policy of the CBN to review the capital base,” he added.
He asserted that the current approach and timeline given by the CBN would help minimise “the risk of banks collapse or hasty mergers and acquisitions.”
Yusuf further applauded the apex bank for maintaining the categorization of banks into international, national and regional banks, with differential capital requirements, adding that it allows for “inclusion and reduce the risk of dominance of the banking space by a few big banks.”
Despite the current level of capitalisation, the Centre said it is imperative for the CBN to assure depositors of the safety of their funds in the banking system, stressing that “It is important to sustain the confidence of the banking public about the soundness and stability of the Nigerian banking system, especially because of the perception and vulnerable risks of smaller banks.”
“We implore the CBN to ensure minimum risk to shareholders and employees in the banking system, across board. It is also imperative to guide against elevated concentration risks and the deepening of oligopolistic structure in the banking system.”
Access to Credit by Businesses
The Centre also expressed concerns about large interest rate spreads in the Nigeria banking system and poor access to credit by small businesses, adding that such practice inhibits economic growth.
According to him, “Spread between deposits and lending rates are sometimes as high as 20%, which is one of the highest globally. The tenure of funds in the banking system is extremely short. Over 80% of funds are of one year tenure or less, which explains the high level of assets and liability tenure mismatch in the banking system.
“Access to credit by small businesses remains a major inhibition to economic growth and economic inclusion. Small businesses account for over 50% of GDP but get less than 5% of credit in the banking system.
“The financing gap in the Nigeria SME space is about $32.2 billion [over N40 trillion], according to IFC estimates. De-risking the credit space for small businesses should be accorded high priority in the new dispensation. This is essential to boost growth, create jobs, and deepen economic inclusion.”
As the CBN moves on with implementing the recapitalisation policy, CPPE urged it to “caution all players in the banking sector against predatory and other anti-competitive practices in the industry.”
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
