The Central Bank of Nigeria (CBN) governor, Mr. Godwin Emefiele has unveiled the policy direction of his second five-year term with a promise to recapitalise banks within the period to make them contribute significantly to economic growth.
Speaking in Abuja on Monday, June 24 at the unveiling of his economic vision for the next five years, Emefiele said the drop in the naira to dollar ratio had weakened the banks’ capital base hence the need for recapitalisation.
“In the next five years, we intend to pursue a programme of recapitalising the banking industry so as to position Nigerian banks among the top 500 in the world.
“Banks will, therefore, be required to maintain a higher level of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system.
“Recall that it was Governor (Chukwuma) Soludo in 2004 that did the last recapitalisation we had. He moved the capitalisation from N2bn to N25bn. And I must commend those efforts because it resulted in positioning Nigerian banks not only in Africa but among the top banks in the world in terms of capitalisation.
“It also helps to increase the banking industry’s capacity to take on large transactions. And those are some of the things we badly need today.
“So if you relate N25bn with 2004 exchange rate which was about N100 (to a dollar), N25bn was about $250m. Today, if you relate N25bn at N360 (to a dollar) you will see that it is substantially lower than $75m.
“So what we are trying to say is that the recapitalisation has weakened and there is a need for us to say it is time to recapitalise the banks again.
“It’s a policy thrust which would be discussed at the committee of governors’ meeting and of course, the framework for the recapitalisation of Nigerian banks would be unfolded for the whole world in due course,” he said.
To fast track the recapitalisation process, Emefiele announced that the committee of governors of the CBN would meet to discuss the new policy.
He said the meeting is expected to discuss modalities for the exercise as well as approve the framework that would guide the implementation of the policy.
Besides, the governor said the bank will work closely with the fiscal authorities to target a double digit growth; bring down inflation to single digit; and accelerate the rate of employment.
“Put succinctly, our priorities at the CBN over the next five years are the following: First, preserve domestic macroeconomic and financial stability; Second, foster the development of a robust payments system infrastructure that will increase access to finance for all Nigerians thereby raising the financial inclusion rate in the country; third, continue to work with the Deposit Money Banks (DMBs) to improve access to credit for not only small holder farmers and MSMEs but also consumer credit and mortgage facilities for bank customers. Our intervention support shall also be extended to our youth population who possess entrepreneurship skills in the creative industry,” he said.
He said the CBN during the period will encourage the DMBs to direct more focus in supporting the education sector, grow the country’s external reserves, and support efforts at diversifying the economy through CBN intervention programmes in the agriculture and manufacturing sectors.
On macro-economic stability, he said over the next five years, emphasis would be on supporting improved gross domestics product (GDP) growth and greater private sector investment.
He said the CBN would leverage monetary policy tools in supporting a low inflation environment, while seeking to maintain stability in our exchange rate.
“We intend to leverage monetary policy tools in supporting a low inflation environment while seeking to maintain stability in our exchange rate.
“As a result, decisions by the Monetary Policy Committee on inflation and interest rates will be dependent on insights generated from data on key economic variables.”
“Our ultimate objective is to anchor the public’s inflation expectation at single digit in the medium to long run.
“We believe a low and stable inflationary environment is essential to the growth of our economy because it will help support long term planning by individuals and businesses.
“It will also help to lower interest rates charged by banks to businesses thereby facilitating improved access to credit, and a corresponding growth in output and employment,” he said.
On the power sector intervention by the apex bank, he expressed regret that the investors have not lived up to expectation, nevertheless reassuring that because of the importance of the sector to Nigeria’s industrialisation vision, the apex bank would still intervene but in a different manner.
“Our intervention in the power sector is continuing, we have 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, we shall 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 our not accessing power to derail us from our own shared objectives that we must work hard, create jobs and improve supply and stabilise 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,” he said.
On exchange rate stability, he also offered the following commitment:” We will continue to operate a managed float exchange rate regime in order to reduce the impact which continuous volatility in the exchange rate could have on our economy. We will support measures that will increase and diversify Nigeria’s exports base and ultimately help in shoring up our reserves. While the dynamics of global trade continue to evolve in advanced economies, Nigeria remains committed to a free trade regime that is mutually beneficial; but, particularly aimed at supporting our domestic industries and creating jobs on a mass scale for Nigerians. We intend to aggressively implement our N500bn facility aimed at supporting the growth of our non-oil exports, which will help to improve non-oil export earnings.”
On cashless policy, Emefiele said: “We will reinvigorate our efforts at driving the cashless initiative across the country, due to the immense efficiency gains that will be derived from it, and the impact it could have on our financial inclusion drive.
“We will continue to work to safeguard the stability of our financial system, while supporting the development of a payment system infrastructure that will improve access to credit for all eligible Nigerians.
“Nevertheless, additional emphasis will be placed on supporting greater growth of our economy and in reducing unemployment through targeted interventions in the agricultural and manufacturing sectors,” he said.
On development finance, the CBN governor said he intended to boost productivity growth through the provision of improved seedlings, as well as access to finance for rural farmers in the agricultural sector, across 10 different commodities namely rice, maize, cassava, cocoa, tomato, cotton, oil-palm, poultry, fish, and livestock/dairy.
“We believe these measures will help to boost not only our domestic outputs but also improve our annual non-oil exports receipts from $2bn in 2018 to $12bn by 2023,” he added.
Meanwhile, the Lagos Chamber of Commerce and Industry (LCCI) said reacted to the proposed recapitalisation saying it will further strengthen the capacity of banks to support the economy better.
LCCI’s director general, Mr. Yusuf, said the idea of recapitalisation of banks is not a bad idea.
“It would strengthen the capacity of banks to support the economy better, especially with regards to large projects. It will also be beneficial in bolstering the capacity of the banks to withstand macroeconomic shocks,” he said.
He however, said the exercise should be undertaken in the manner that would not inflict disruptions to the banking system.
For his part, a professor of capital market at the Chartered Institute of Bankers of Nigeria (CIBN) Abuja branch, Prof. Uche Uwaleke described the recapitalisation agenda as a “good development.”
Specifically he said a recapitalization will be positive for the financial system strategy and the Nigerian economy even as he advocates at least N100bn capital base for tier one banks.
He noted that if the recapitalisation eventually happens, Nigerian banks will be bigger and be able to play a catalyst role in Nigeria’s economic growth.
Uwaleke also noted that the recapitalisation will come with better capital adequacy ratio for the banks.
Besides, he said the banks have the option of approaching the capital markets to raise funds to shore up their capital base but those who can’t raise funds should merge.
He also noted that 10 big banks will add more value to Nigeria than many small banks and advised the banks to be proactive in raising capital and investing in technology to drive deposits and not wait to be caught napping by the CBN.
Commenting on the development, the president of Chartered Institute of Bankers of Nigeria, Dr. Uche Olowu, said there was no need for people to panic or have any fear about the financial system.
He said that the announcement of an intending capital increase in the banking sector was a welcome development.
“Ordinarily, in other climes, you continue to look at the risks that you will take because of the opportunities that you see in them. You ask them to recapitalise because of the opportunities that will come. We need to beef up the capital base.” he said.
He said that some banks were moving into the regional regions and needed to shore up their capital to beef up more confidence.
“Even with the latest International Financial Reporting Standard, it also affects capital. So it is important that they begin to address it based on their capital base.
“If you are raising your capital, it is based on the risk you are taking. Capital is a function of the business that you want to do. There is already a minimum capital, if you now feel you want to do more, it is a function of the risk you want to take,” he said.
With Punch, The Guardian, Daily Trust, Premium Times reports
