Uncertainty looms in the banking sector over proposed plan by the Central Bank of Nigeria (CBN) to recapitalize commercial banks operating in the country, our correspondent gathered.
Our correspondent also gathered that regional and national banks might be CBN’s target on recapitalization as most international banks in Nigeria have capital in excess of N500 billion.
The last time the CBN recapitalise the banking industry was in 2005 which led to some key financial institutions to merge. Then, the apex bank raised capital base of banks from N2 billion to N25 billion.
The CBN governor, Mr. Godwin Emefiele speaking on his five years thrust in June had said, “In the next five years, we intend to pursue a programme of recapitalizing 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 an economic crisis on the financial system.”
Responding, the chief economist/head of research of PAC research, Mr. Moses Ojo in a chat with our correspondent during the weekend expressed that the CBN has not officially announce the proposed recapitalization in the banking industry, stressing that macro variable indicators point to imminent increase in recapitalization of the sector.
According to him, “The CBN has no official announcement plans to increase capital base of the banking sector by 2020. However, the same CBN months ago stated that the capital base of banks based on the current foreign exchange has dropped.
“When you compare exchange rate of 2014 when the CBN recapitalise the sector and now, the figure should be around N200billion- based on the N25 billion recapitalization of 2014.
The CBN governor in June was not specific on recapitalization by 2020.”
He noted that the body language of the regulatory body and other macro variables tend towards banking industry recapitalization next year.
“I think it is likely that the CBN will increase capital base of banks by next year,” he said.
Speaking on the implication, he said, “ the recapitalization is expected to make banks more solid in terms of capital base. We may likely experience merger and acquisition in the banking sector.
He added,”Our banks can compete with their peers in South Africa in terms of total assets and customers base”.
Head, Research and Strategy at FSDH, Mr. Ayodele Akinwunmi explained to our correspondent that the banking industry currently has a weaker capital base compared to the nation’s Gross Domestic Product (GDP), stressing that weaker capital base of banks operating the country cannot drive economy growth.
According to him, “There are a lot of metric the CBN can use to introduce new capital base in the banking industry. If you look at the GDP of Nigeria and capital base of 2004, compared to what we have today, you will note that the GDP has increased significantly while the capital base in the banking industry is still at N25 billion.
“It is easy to note that banks recapitalization to GDP right now has dropped substantially.
He explained further that, “Also, if you look at the dollar equivalent of the capital base of N25 billion at the time and that of today, it has dropped significantly.
“For the banks to continue to support economy growth in the country there will be need for the banks to justify by recapitalizing.
“Mind you, the CBN governor had announced plans to recapitalize the banking industry as part of his five-year agenda in June.”
The apex bank boss recalled that in 2004 when the banks were last asked to recapitalise, the value of a dollar to the naira was about N100.
Emefiele had explained that the N25billion capital base of banks when translated into the dollar was about $250million.
However, due to the drop in the value of the nation’s currency which now exchanges for N360 to a dollar, the governor put the translated value of N25billion at just about $75million.
Going by this, it, therefore, means that the value of the capital of each bank had been reduced by $175million.
Emefiele said going by the huge developmental role the apex bank would want the banks to play in the next five years, it had become imperative to demand their recapitalisation.
Following the announcement of the recapitalisation exercise, Emefiele said the Committee of Governors of the CBN would meet to discuss the new policy.
The meeting is expected to discuss modalities for the recapitalisation exercise as well as approve the framework that would guide the implementation of the policy.
According to the CBN governor, “Recall that it was Governor (Chukwuma) Soludo in 2004 that did the last recapitalisation we had. He moved the capitalisation from N2billion to N25billion. And I must commend those efforts because it resulted in positioning Nigerian banks not only in Africa but among the top banks in the world in terms of capitalisation.
“It also helps to increase the banking industry’s capacity to take on large transactions. And those are some of the things we badly need today.
“So if you relate N25billon with 2004 exchange rate which was about N100 (to a dollar), N25billion was about $250million. Today, if you relate N25billion at N360 (to a dollar) you will see that it is substantially lower than $75million.
“So what we are trying to say is that the recapitalisation has weakened and there is a need for us to say it is time to recapitalise the banks again.
“It’s a policy thrust which would be discussed at the committee of governors’ meeting and of course, the framework for the recapitalisation of Nigerian banks would be unfolded for the whole world in due course.”