Recapitalisation: Experts Charge CBN On Safety Of Depositors’ Funds

Stakeholders have said it is imperative for the Central Bank of Nigeria (CBN) to assure depositors of the safety of their funds in the banking system, irrespective of the current level of capitalisations of banks.

This is as the Association of Corporate & Marketing Communication Professionals of Banks (ACAMB) has said there is no need for bank customers as well as the general public to panic over the state of the industry following the new minimum capital as stipulated by the Central Bank of Nigeria (CBN).

The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture also said it is taking a cautious and analytical approach to the CBN’s new guidelines on the recapitalisation of banks in the country.

The chief executive officer of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf warned on the Implications of the Proposed Recapitalisation of Nigerian Banks that the last major review of minimum capital requirement was done in 2005, some 18 years ago.

According to him, “but since then, the value of the minimum capital has been significantly eroded by inflation.  For instance, the official exchange rate in 2005 was about N130 to the dollar.  This meant that the N25 billion for a national bank, for instance, was equivalent to $192 million.  The naira equivalent today is about N250 billion.  For the International Banking licence, it would be about $384 million, an equivalent of about N500 billion.  The reality is that the capitalization requirement has not increased materially in real terms, that is when adjusted for inflation.

ACAMB, in the statement noted that while Nigerian banks are globally regarded as safe, resilient and thriving; there is always room for growth. “As Nigeria seeks to aggressively unlock its innate potential to become a global emerging economy, banks must also stand ready to play their crucial roles of financial intermediation.

“The CBN circular on review of minimum capital requirement for commercial, merchant and non-interest banks over the next 24 months has laid to rest any anxiety about the intention, process and possible outcome of the new recapitalisation exercise.

 

 

“The import of the recapitalisation announced is that Nigerian banks are safe and reliable but the apex bank in its developmental mandate, is leading the banks to strengthen their capacities to meet competitive domestic and global financial needs.”

 

 

ACAMB furthered that the overarching theme that runs through the circular and its explanatory notes further affirms the soundness of the banking sector, in line with several rating reports on Nigerian banks by leading local and international rating Agencies.

 

 

“We commend the CBN for the thoughtfulness it has put into the announced modality for the recapitalisation. ACAMB particularly noted the distinctive definition of the new minimum capital base for each category of banks as the addition of share capital and share premium, as against the previous use of shareholders’ funds.

 

 

“We urge the public to take note of this change. As it stands, banks are on the same page and as such, there is no need whatsoever for any fear, as the banks have the capacity to meet the recapitalisation in line with allowable options stipulated by the apex bank.

 

 

“All facts point to a win-win for the Nigerian banks, the financial market and the economy under this recapitalisation. The Nigerian capital market, where banks are the most influential group, has the depth to meet the capital requirements of banks. The extended timeline till 2026, provides ample opportunity for each bank to follow through its recapitalisation plan, without undue crowding effect.

 

 

“With their background of good returns and liquidity, banking stocks are toasts of domestic and foreign investors. This pedigree, coupled with resilient performance of banks despite economic challenges, will come to the fore as investors know recapitalisation means stronger banks and better returns.

 

 

“The banking industry will continue to work with financial authorities to build up the economy. This recapitalisation will put Nigerian banks in better stead to support the strengthening of the economy; the expansion of the real sector, and the building of bigger banking brands that can compete continentally and globally.”

 

Meanwhile, Dr Yusuf said, “The real issue is that inflation has weakened the value of money overtime which makes recapitalisation imperative and inevitable. The essence is to ensure the safety of depositors’ funds, strengthen the stability of the financial system, deepen resilience of the banking system and reposition the bank to support growth.”

 

He noted that, ‘reports from the central bank of Nigeria attests to the fact that Nigerian banks have good soundness indicators.’

 

He emphasised that the proposed recapitalisation of banks should be done in a manner that would minimise shocks and disruptions to the banking system and the economy at large, commending the CBN for giving a timeline of 24 months for banks to comply.

 

He added that, “with the current approach and timeline given by the CBN, the risk of banks collapse or hasty mergers and acquisitions should be minimised. It is also laudable that the current categorisation of banks with differential capital requirements has been maintained; international, national and regional.  This is necessary to allow for inclusion and reduce the risk of dominance of the banking space by a few big banks.”

 

 

Yusuf said: “it is important to sustain the confidence of the banking public about the soundness and stability of the Nigerian banking system, especially because of the perception and vulnerable risks of smaller banks.”

 

He implored the CBN to ensure minimum risk to shareholders and employees in the banking system, across board, saying it is also imperative to guide against elevated concentration risks and the deepening of oligopolistic structure in the banking system

 

He added that, “there are also concerns around the large interest rate spreads in the Nigeria banking system.  Spread between deposits and lending rates are sometimes as high as 20 per cent, which is one of the highest globally.  The tenure of funds in the banking system is extremely short. Over 80 per cent of funds are of one year tenure or less, which explains the high level of assets and liability tenure mismatch in the banking system.”

 

He urged the apex bank to caution all players in the banking sector against predatory and other anti-competitive practices in the industry on account of the recapitalization policy.

 

Also, NACIMMA in a statement, said it will engage with relevant stakeholders and await the complete policy framework’s release before formulating a comprehensive response.

 

 

In the statement addressing the CBN’s directive to raise Tier 1 and Tier 2 banks’ capital bases to N500 billion and N200 billion respectively, NACCIMA National President, Dele Oye, emphasised the need for prudence and thorough analysis given the policy shift’s significance within the banking sector and its potential macroeconomic implications.

 

 

“It is imperative to highlight NACCIMA’s approach to this matter as one of caution, prudence, and thorough analysis.

 

 

“As such, we intend to engage in consultations with our stakeholders and await the disclosure of the complete policy framework from the CBN and the government,” Oye said.

 

 

He acknowledged the importance of maintaining a robust banking system while expressing the association’s inability to provide a comprehensive commentary without access to the full details and context surrounding the CBN’s decision.

 

 

“NACCIMA acknowledges the significance of this policy shift within the banking sector and its potential implications on the broader macroeconomic landscape,” he said.

 

 

Also, ACAMB in a statement welcoming the “much-anticipated circular of the Central Bank of Nigeria (CBN) on the banking sector recapitalisation” said the development is a “win-win” situation for the banking industry.

 

 

This is as it reassured all depositors and shareholders to keep about their businesses with the Nigerian banks without fear, saying “Banks will continue to cooperate with the CBN in the implementation of the recapitalisation programme. ACAMB shall also be engaging all stakeholders in order to ensure balanced and factual representation as the recapitalisation progresses.