Indications suggest that the Central Bank of Nigeria (CBN) would announce a recapitalisation plan this year, as commercial banks start to prepare ahead of this move.
Reports have it that most banks have already gone beyond the N25 billion minimum capital requirement and are strategising to raise Tier 2 capital.
Recall that the CBN Governor, Godwin Emefiele, had announced in his five-year economic blueprint that was unveiled in June last year, that it plans to recapitalise the banks within the next five years, to make them contribute significantly to economic growth.
How the banks are preparing? A bank CEO, who spoke to ThisDay on condition of anonymity made known that his bank was on its way to raising N500 billion Eurobond this year. He said that banks were looking forward to it and they had already started working towards it.
The President, Chartered Institute of Bankers of Nigeria (CIBN), Uche Olowu was quoted saying, “Down the line, the banks are also preparing to beef up their capital because that is something that should happen this year and we expect the regulators to come out with an announcement because we need the financial system to be more stable, especially now that we are now into major infrastructural development.
“And as they are supporting financial inclusion, they need to beef up their capital and I support that. I don’t know the mind of the regulators on how they intend to go about it, but if you ask me, they should categorise the banks. Recapitalising the bank would further improve confidence in the banking industry and if their capital base increases, they would be able to support the economy more.”
On the other hand, former CBN Governor, Prof. Chukwuma Soludo is of the opinion that Nigerian banks needed to be able to finance large ticket transactions in Africa. He stated that compared to other African continents, the total size of Nigerian banks’ assets, which was N43.7 trillion as of half-year 2019, was low.
He explained that Nigeria needs to become Africa’s financial and banking centre as it is the largest economy in the continent which is why it is important to create a stronger banking and financial sector.
What this means: An increase of the capital base of Nigerian banks would strengthen the banks and in turn, deepen activities within the industry. However, the move could have a far-reaching effect on employment in the sector, seeing as some employees may lose their jobs.
That not withstanding, the recapitalisation of the banks is expected to improve the financial health of the banking sector, whilst helping the commercial banks to appreciate in terms of performance.