CBN to raise banks capital above N25bn

 

Central Bank of Nigeria Governor, Mr Godwin Emefiele,  on Monday said the management will work with relevant stakeholders to recapitalise commercial banks in the country to make them stronger to undertake greater risks.  He made the disclosure while unveiling his second term, five-year agenda (2019-2023) in Abuja.

The last recapitalisation exercise was done between 2004 and 2006 by the then CBN Governor, Chukwuma Soludo.

Emefiele said: “In the next five years, we intend to pursue a programme of recapitalising the banking industry so as to position Nigerian banks among the top 500 in the world. Banks will, therefore, be required to maintain higher level of capital, as well as liquid assets in order to reduce the impact of economic crisis on the financial system.

“Soludo did the last recapitalisation exercise in 2004 and increased the capital base of banks from N2 billion to 25 billion. It helped the banks and the economy become stronger. We could now take up large ticket transactions.

“But relate the value of N25 billion in 2004 when the exchange rate was about N100/dollar to now when the rate is N360/dollar. That is about $75 million. So, we need to recapitalise. It’s a policy trust and will be discussing at committee of governors meeting and modalities will be unveiled for everyone to see”, he explained.

He added that with the rise in digital payments and cyber security threats, the CBN will develop a robust mechanism that will help ensure that the necessary safeguards are put in place by banks and financial institutions to protect against loss of data, fraud and cyber incursions in their respective systems.

According to him, the apex bank in his second tenure, will work closely with fiscal authorities, to target a double digit growth and annual non-oil exports receipts from $2billion in 2018 to $12billion in the next five years.

“We intend to aggressively implement our N500billion facility aimed at supporting the growth of our non-oil exports, which will help to improve non-oil export earnings.

Reacting to the planned recapitalisation of banks, President of the Chartered Institute of Bankers of Nigeria (CIBN), Dr Uche Olowu, said there was no need for panic among bankers as  the Nigeria financial system remains stable. He said the whole ideaof recapitalisation was to continue to sustain that stability in order to expand the scope of banks to do bigger businesses.

Olowu said the only thing thing the boards of these banks would is to go back to the drawing board and restrategise ahead of the CBN’s impending guidelines of the reapitalisation, assuering the system will take care of itself with adequate planning. Asked if the policy would lead to mergers and acquisition, the CIBN boss said there was no need to preempt the CBN or  banks but that the system will in itself unfold when the guidelines are released.

In his response to CBN’s planned recapitalisation, the Chief Executive Officer of Financial Derivatives Limited, Mr. Bismarck Rewane, said the move was all about building buffers to enable them withstand shocks should there be any.

The economic expert said the N25 billion recapitalisation in 2004 does not  have the same value as what obtains in 2019 coupled with the differentials in exchange rate over a 15-year period.

He explained that when N25 billion is divided by N155 to one dollar which was the exchange rate in 2014, the dollar equivalent should now be multiplied by N360 to a dollar which is the current prevailing rate, about N75 billion would be the result.

He said what that means is that banks should be prepared to triple their shareholders fund or at best double their capital over a 15- year period, saying it is a regulatory induced consolidation.

Rewane said compared to African banks, Nigerian banks are still strong considering what happened during the AMCON induced consolidation of 2009 to 2012 when some banks bought into each other.

According to him, some banks will have to increase their capital, and not necessarily merge because the CBN has just licensed some banks which will also have to meet the new capital requirement.

‘‘Is it true that the banks need higher capital to do their businesses, the answer is yes. Let us take stock of the consolidation of 15- years ago. Has it led to increased financial inclusion and services, has it reduced cost, has it made Nigerian banks competitive? If the answer is yes, then there may be no need for further recapitalisation. But if the answer is no, then there will be need to increase capital to make them regional giants.

Also commenting of the planned bank recapitalisation policy, Managing Director, Cowry Asset Limited, Mr. Johnson Chukwu, said it should  be not be a one size fits all approach just like it  was done in 2006.

He said given the level of advancement in banking regulation globally,  what the CBN should do in its latest effort is to design a guideline that will allow banks have  capital that can sustain their operational risk capacity.

He argued that already said the banking sector has the capital adequacy ratio that is clearly based on the risk portfolio a financial institution is exposed to.

For instance, he said international banks have a higher level capital adequacy ratio compared to local banks that have lower ones.

‘‘I don’t expect the CBN to come up with a blanket capital base requirement for all Banks. The need should be risk based for it to make meaningful impact,” he warned.

Meanwhile the Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Prof Uche Uwaleke has urged the CBN to raise m]new bank’s capitalisation threshhold to N100 billion, up from N25 billion. “The N25 billion is already eroded when you look at our exchange rate.

“It is better to have 10 healthy banks than 20 that will be giving CBN headache. The tier two banks are also the most exposed banks to NPLs. The big five, are not giving CBN much problem like the others.

“Bigger banks can easily bankroll larger businesses. So,  if we are one of the 500 banks in the world, we can play comfortably in the international league.

“Bigger banks have better corporate governance and monitoring by CBN is much easier.

Fewer stronger banks will invest in the right technology to deliver better services”, he said.