Experts have cautioned the federal government not to be hasty in recapitalisation of commercial banks in the country, saying the government should consider the micro and macroeconomic indices before implementing the recapitalisation policy.
Although they welcomed the idea of recapitalisation, they say the policy shouldn’t be forced on banks and a different approach should be adopted from the last exercise which took place in 2005.
Daily Trust reports that the Central Bank of Nigeria (CBN) governor, Olayemi Cardoso, who spoke over the weekend at the bankers’ dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos, said to achieve Nigeria’s vision of $1 trillion economy, the apex bank will ensure recapitalisation of Nigerian banks.
The government of President Bola Ahmed Tinubu in its Policy Advisory Council report on the national economy earlier had set a target of achieving a Gross Domestic Product (GDP) of $1.0 trillion over the next seven years, with clearly defined priority areas and strategies.
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Cardoso said, “It is not just about the stability of the financial system in the present moment, as we have already established that the current assessment shows stability. However, 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 shortly?” In my opinion, the answer is ‘No’! unless we take action.
“Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital,’’ he said at bankers’ dinner.
The last time recapitalisation of banks took place was in 2005 when Prof. Charles Soludo was governor.
18 years after, the recapitalisation policy as announced by the CBN governor now entails that Deposit Money Banks will have to raise their capital base to serve Nigeria’s $1 trillion economy target.
President, Capital Markets Academics of Nigeria (ACMAN), Prof. Uche Uwaleke, said the idea of recapitalisation of banks is a welcome one but that the economic indices should be considered as well as a different strategy.
“It goes without saying that capital is needed to finance big-ticket projects, especially when the government is targeting a 1 trillion dollar economy in a few years’ time.
“Also, if the experience of 2005 is any guide, the recapitalisation exercise is likely to rejuvenate the stock market.
“But I think the strategy should be somewhat different from the approach adopted in 2005. It should be more about incentives than coercion,” Uwaleke said.
He also proposed that the CBN should use prudential guidelines to strengthen the present tiered arrangements, adding that, “The use of the CAR (the ratio of a bank’s capital to risk weighted assets) is a good example. The apex bank can also use differential cash reserve requirements as well as preferential participation in the forex market for well capitalised banks as some of the incentives.
Also speaking, a development economist, Joseph Momoh, noted that recapitalisation of banks comes with implications which the CBN has to put into consideration.
“Recapitalisation will mean that some banks that cannot meet up have to form mergers. As such, it is important to take into consideration these factors before implementation.
“Also, the CBN should note that achieving a $1trillion economy will not be possible only from the monetary side, as such partnership with the fiscal side is also important, after all many argued that this target is too ambitious but it can also be achieved,” he said.
Kalu Aja, financial analyst, urged the CBN not to abandon the development finance programmes initiated by the former governor, Godwin Emefiele.
“The critical sectors of the economy, especially power and infrastructure, need low-cost long-term capital to de-risk the projects they bring to market. So, the CBN should simply do it better than Emefiele,” he said
Aja noted that for the first time, a CBN governor is admitting Nigeria’s problems and also setting a new direction that the CBN will focus on, which is human development index.
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