The Central Bank of Nigeria (CBN) has explained that the rationale for exclusion of retained earnings by banks is targeted at injecting fresh capital into the system.
The apex bank spoke through its Director, Financial Policy and Regulatory Department (FPRD), Haruna B. Mustafa, in a podcast titled ‘Banking Sector Recapitalisation Programme 2024.
It would be recalled that in March 28, 2024, the CBN raised capital requirements for banks operating in the country to N500bn for international, N200bn for national and N50bn for regional banks.
However, the bank said other reserves and Additional Tier 1 (AT1 Capital) shall not be allowed or recognized for the purpose of meeting the new minimum capital requirements.
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Mustafa said, “Section 9 and Section 63 (2a) of the Bank’s and Other Financial Institutions Act, 2020 empower the central bank to determine the capital of banks and also the timeline within which banks should comply with those requirements.
“It also enables the CBN to set the level and quality of capital that all the banks will have. And this is without prejudice to what should constitute the shareholder’s funds.
“What the central bank has simply done is to ensure that banks inject fresh equity, fresh capital. Don’t forget, banks are in the business of financial intermediation, and this comes with risks. The capital is there to absorb some of these risks or losses that may arise from their operations.”
He explained further that Nigeria’s banking system is safe, sound and resilient, adding that the regulator is only trying to enhance and further strengthen the banking system.”
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