The governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso’s steps towards the recapitalisation of Nigerian banks received a boost recently when the Senate kick-started the amendment to the CBN Act, to raise the paid-up capital base of commercial banks from N25 billion to N1 trillion. The measure is in tandem with the government’s desire to build a $1 trillion economy, a vision emphasised by the CBN governor and the Presidency on several occasions.
Mr. Cardoso justified the dream economy by saying, “Considering the policy imperatives and the projected economic growth, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy….It is not just about the stability of the financial system in the present moment….We need to ask ourselves: Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future? In my opinion, the answer is ‘No!’ unless we take action….As a first step, we will be directing banks to increase their capital.”
Even without the government’s vision of building a huge economy as quickly as possible, it is clear that with the devaluation of the Naira by over 50 per cent in the last nine months of this administration, the current N25 billion capital base for banks can no longer stand as a buffer from distress. At the time, in 2009, when the capital base was raised from N2 billion to N25 billion, the exchange rate was about N160/$1. Today, the exchange rate is about N1,600/$1, rendering inconsequential a capital base of N25 billion for banks. Also, without an enhanced capital base, Nigerian banks will not have the capacity to raise funds for gigantic projects like the Dangote Petroleum Refinery. The prosperity of an economy largely depends on the strength of its banks and their capacity to provide substantial funding to entrepreneurs who embark on huge projects. However, it is not only commercial banks that should enhance their capital base; microfinance and even regional banks must raise their capital bases in order to meet the demands of the sector of the economy they target.
The CBN, as a regulatory agency, must tackle other besetting problems facing the banking sector even as it puts in place a fresh paid-up capital mandate. One of them is how Non-Performing Loans (NPLs) have become a threat to the stability of many banks. In the last few years, the CBN supervised the takeover, merger, and renaming of banks, which failed stress tests as a result of their exposure to toxic NPLs. These loans were issued to friends, family members, and business associates of top executives of banks who failed to repay them. In amending the CBN Act, it is important to amend the sections that have to do with NPLs, to ensure depositors’ funds and shareholders’ investments are not ruined by the greed and misdeed of top bank executives.
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In 2009, the Assets Management Corporation of Nigeria (AMCON) was created to buy up non-performing loans in order to rescue banks that were sinking under the heavy burden of such loans. But the measure has not deterred banks from accumulating more illicit loans. In 2019, the National Bureau of Statistics (NBS) reported that banks had as much as N1.4 trillion NPLs, which were not cleared. This figure aligns with the regular feature of ‘bad debts’ in the balance sheets of many banks. It is clear that many banks would depend on foreign investors through the capital market to raise the N1.0 trillion capital. But foreign investors may not be attracted to a banking sector that overflows with huge bad debts. It is for this reason that the CBN must take a very close and critical look at illicit debts owed banks, and assist them in making recoveries, as it embarks on efforts to shore up banks’ capital base.
Closely related to the issue of the integrity of Nigerian banks is the poor corporate governance that has given space for robbers, crooks and fraudsters that threaten depositors’ funds. The Economic and Financial Crimes Commission (EFCC) revealed recently that banks were implicated in over 75 per cent of financial crimes it investigated in the country. Thousands of Nigerians who have suffered from poor cyber-security measures in banks would quickly agree with the EFCC. The rate at which Nigerian banks are vulnerable to cybercrimes is totally unacceptable in this digital age where everyone’s financial asset is in the cyberspace. The CBN must lead banks into acquisition of cyber-security tools to fortify both depositors’ private data and their deposits in our banks. This is not optional; it has become imperative.
The CBN, going forward, must not ignore the fintech sector where diverse digital financial transactions are taking place. The regulatory bank must rein in all the fintech companies operating in the Nigerian digital space in order to protect deposits by Nigerians. The idea of shrugging off complaints by victims of financial misdemeanors perpetrated by fintech companies is not appropriate. The CBN must put in place rules, procedures and guidelines that would defend the people from criminals who take advantage of modern technology to defraud Nigerians. Apart from the recapitalisation of banks, the CBN has a lot more work to do to strengthen the financial sector and boost the Nigerian economy.
