By Tony Obiechina, Abuja
The Governor of the Central Bank of Nigeria, CBN, Mr Godwin Emefiele, says there are plans to carry out a recapitalization exercise for deposit money banks in the country.
Emefiele who made this known while unveiling the Bank’s five-year policy direction in Abuja on Monday, 24th June, 2019 noted that the banks’ capital base which was last recapitalised in 2004 “has been weakened”.
Bank recapitalization is the act of changing the capital structure of a bank to provide more equity funds to meet the bank’s long-term financing needs to ensure the security of shareholders fund.
In July 2004, the CBN announced the recapitalization of the banking sector from N2 billion to N25 billion with effect from December 31, 2004. This led to the reduction in the number of banks to 24 from 89.
He commended his predecessor, Prof Chukwuma Soludo for raising the capital base from N2 billion to N25 billion in 2004 adding now is the time to recapitalise.
“You will all agree with me that it was governor Soludo in 2004 that did the last recapitalization moving the capitalization from N2 billion to N25 billion.
“I must commend those efforts because it resulted in positioning Nigerian banks not only in Africa but also being among the top banks in the world in terms of capitalization and also helped to increase and strengthen the banks’ capacity to take on large ticket transactions and those are some of the things we badly need today.
“If you relate it N25 billion in 2004 exchange rate which was about N100/$ N25 billion is almost about $200 million today if you relate N25 billion at 360, you can see that it is substantially lower than $75 million so what we are trying to say is that the capitalization has weakened quite substantially, and there is a need for us to say that is time to recapitalize Nigerian banks
“It is a policy trust, which will be discussed, at the Committee of Governors meeting and of course, the framework for recapitalization of Nigerian banks will be unfolded for the whole world to know.
“We will continue to improve our on-site and off-site supervision of all financial institutions while leveraging on data analytics and our in-house experts across different sectors to improve our ability to identify potential risks to the financial system as well as risks to individual banks.
“In the next five years, we intend to pursue a programme of recapitalising the Nigerian banking industry so as to position Nigerian banks among the top 500 in the world.“
“Banks will, therefore, be required to maintain a high level of capital as well as liquid assets in order to reduce the impact of an economic crisis on the financial system. With a rise in digital payment and cybersecurity threats”, Emefiele stated.
On the power sector, the Governor said, “our intervention in the power sector is continuing, we had done some interventions; the N213 billion which was meant to settle some of those obligations and also the N700 billion. I must confess that we are not too happy with the way the whole power sector arrangement is unfolding, but in the course of time, provide our advice as to the best ways to really tame this power issue.
“But I want to say that yes, part of the challenges that businesses face is power but what I am saying is that we should try to harness the innate strengths in us not to allow not accessing power to derail us from our own shared objectives that we must work hard, create jobs and improve supply and stabilize prices in Nigeria.
“Don’t get me wrong, we would continue to intervene in that sector but it should not be an excuse to let down our guards to result in a situation where there will be unemployment and hopelessness in our country”, the Governor stressed.
On whether the policy would lead to mergers and acquisition, the CIBN boss said there was no need to preempt the CBN or banks but that the system will in itself unfold when the guidelines are released.
It is the view of other economic experts, that the present N25 billion recapitalisation introduced in 2004 “does not have the same value as what obtains in 2019 coupled with the differentials in exchange rate over a 15-year period”.
Going forward, the Apex Bank is expected in next five years to leverage on Emefiele’s achievements which had convinced the Buhari Administration to renew his tenure despite opposition from some quarters.
And in readiness for the tasks ahead, the governor disclosed that he has held consultations with some banks and business leaders in the Private sector.
“We intend to sustain the pace of those consultations as this would act as barometer for measuring the progress being made in the implementation of our policies. Our assessment of the outcome of that deliberation shows that with concerted efforts, the challenges facing the country are easily surmountable”, he posited.