News of a fresh round of banking sector recapitalisation announced by the Governor of the Central Bank of Nigeria(CBN) at the weekend again sent shockwaves down the spine of bank chief executives amid prevailing inflationary and other macroeconomic headwinds buffeting the sector.
Although there had been ongoing merger talks among banks in the industry, Daily Sun learnt that Dr Olayemi Cardoso, the CBN Governor announcement has since the weekend triggered intense discussion on merger by Deposit Money Banks (DMBs) were rattled by the CBN’s plan to raise their minimum capital base from N25 billion to an undisclosed threshold.
Dr Yemi Cardoso, while speaking at the 58th Annual Bankers Dinner in Lagos last weekend urged banks to fortify their financial capacity to meet the demands of a $1 trillion economy planned by the President Bola Tinubu administration.
While the apex bank is yet to unfold details of its recapitalisation plan, Daily Sun learnt that some banks have intensified their merger talks so as not to caught unawares by the CBN.
A bank CEO who crave anonymity told Daily Sun that the idea of joining forces was aimed at wrestling local and global economic volatilities to become fewer and stronger to undertake bigger portfolios. He said merger conversations “will be the main agenda of DMBs in the coming weeks.”
“The merger talks were already on the table long before Cardoso’s announcement, but would be deepened and firmed up in weeks ahead”, the bank chief said.
Meanwhile, some experts have advised the CBN not to go below N100 billion minimum capital base if it truly wants to achieve a $1 trillion economy in a few years time.
The Director General, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, told Daily Sun in a telephone chat that the new capital base should not be less than N100 billion given the prevalent harsh economic realities.
He said the move by the CBN to further fortify the banks was in order in the light of the considerable loss of value amid depreciating domestic currency.
He said: “The new capital base should not be less than N100 billion. During the banking consolidation exercise of 2004, the minimum capital requirements for banks was raised from N2 billion to N25 billion.
“The revised capital requirement was an equivalent of $187 million. Today, the same N25 billion is an equivalent of just $32.5 million. What is the value of the naira today? This is a clear indication of the phenomenal erosion of the capital base of the banks.
“Recapitalisation of the banks has, therefore, become imperative.
“It is important to ensure that the capital base of banks can support their current exposures in the interest of the stability of the financial system”.
A top official at a government-owned financial institution who craved anonymity corroborated the position of Yusuf.
According to him, N100 billion should be the minimum capital base because of the current economic volatilities, which require DMBs to be better financially strengthened or risk being consumed by the rampaging tempest in global markets.
“Ask yourself; what is the value of naira today both at the official and parallel markets? What was it when the last recapitalisation exercise was done? Let’s start from there. So, for banks to handle higher portfolios as the CBN dreams of a $1trillion economy, they have to recapitalise”, he said.
Analysts also note that it is imperative to deepen the financial intermediation role of the deposit money banks, which is their primary role in an economy.
This responsibility, they said, entails the mobilization of financial resources from the surplus end of the economy, to the deficit segment of the economy.
In his reaction, a Small and Medium Enterprises operator and public analyst, Daniel Dickson-Okezie, said the banks are well capitalised and also strong except those that are in violation. There is nothing wrong in recapitalising if they can meet the N100 billion threshhold. He said mergers and acquisition to create stronger banks would not be bad for the system as it will help to create super banks and more multinational banks.
For his part immediate past chairman, MAN Apapa branch, Frank Onyebu said fresh recapitalisation for Nigerian banks was long overdue.
Some of the CBN officials in the past have been bending backwards away from the structuring of the banking system. N25 billion is definitely inadequate especially now that devaluation of naira has set in. I think the fresh banking recapitalisation now should not be anything less than N100 billion.
Maybe they could come in 2 categories; N200 billion and N100 billion. I don’t see why we should have anything less than N100 billion, that should be the minimum. Any bank that cannot cope should be able to merge with others to become big players in the economy.
The central bank has been helping some of the banks to still remain liquid. If we are not careful, it will get to a period where we will start having failures and that will be the end of this economy.
Thing’s are not getting any easier, I think the N100 billion and the N200 billion categories are okay and I am hoping that the CBN governor will be on top of his game because this economy especially for the manufacturing sector if they are not careful, a lot of manufacturers will go under. I know they are aware and I hope the government takes this very seriously. If we cannot sustain the manufacturing sector, then there will be no economy at all.
For the agricultural sector, we need to employ more but because of insecurity it’s been a very tough thing, however the government needs to work hard on insecurity so that the agricultural sector can be brought back to life. If the agric and the manufacturing sectors are working very well, it will definitely boost this economy.
And we need to ensure our banking sector is stable. People are already losing confidence in the sector. So many people are converting their Naira into dollar that is why the exchange rate keeps going down because people don’t have enough confidence in the naira.