The depreciation of the naira between 2004 when the last banking sector
recapitalisation took place and now has cut the value of the capital of
each Deposit Money Bank by about $175m.
The recapitalisation of
the banking sector, which was done in 2005, required the banks to raise
their capital base from N2bn to N25bn.
The exercise then
saw the emergence of 24 Deposit Money Banks following the merger of
some of them as well as the acquisition of many that could not raise the
required capital.
Speaking on Monday in Abuja during the
unveiling of his economic agenda for the next five years, the CBN
Governor, Mr Godwin Emefiele, noted that the drop in the value of the
naira to the dollar had weakened the capital of banks.
For
instance, the apex bank boss recalled that in 2004 when the banks were
last asked to recapitalise, the value of a dollar to the naira was about
N100.
This, he explained, meant that the N25bn capital base of banks when translated into the dollar was about $250m.
However,
due to the drop in the value of the nation’s currency which now
exchanges for N360 to a dollar, the governor put the translated value of
N25bn at just about $75m.
Going by this, it, therefore, means that the value of the capital of each bank had been reduced by $175m.
Based
on the number of Deposit Money Banks in the country which stands at 20,
the total value of the capital base may have been eroded by about
$3.5bn.
Emefiele said going by the huge developmental role the
apex bank would want the banks to play in the next five years, it had
become imperative to demand their recapitalisation.
Following
the announcement of the recapitalisation exercise, Emefiele said the
Committee of Governors of the CBN would meet to discuss the new policy.
The
meeting is expected to discuss modalities for the recapitalisation
exercise as well as approve the framework that would guide the
implementation of the policy.
The CBN governor said during the
unveiling of his agenda for the next five years that the
recapitalisation of banks had become imperative as their current capital
could no longer finance large transactions.
He said, “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.”
Commenting
on the development, the President, Chartered Institute of Bankers of
Nigeria, Dr Uche Olowu, said that 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.
He
stated, “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.”
Providing more insights on his economic agenda
which centred on five major priorities, the CBN governor said he would
work closely with the fiscal authorities to achieve double-digit growth
rate within the next five years.
He said during his second term in office, his first priority would be to ensure domestic macroeconomic and financial stability.
This,
he said, would be followed by the need to foster the development of a
robust payment system infrastructure that would increase access to
finance for all Nigerians thereby raising the financial inclusion rate
in the country.
The governor said his third priority would be to
continue to work with Deposit Money Banks to improve access to credit
for not only smallholder farmers and Micro, Small and Medium
Enterprises, but also consumer credit and mortgage facilities for bank
customers.
Emefiele said the CBN’s intervention support would
also be extended to the youth population who possessed entrepreneurship
skills in the creative industry.
During this intervention period,
the apex bank boss said the CBN would encourage Deposit Money Banks to
focus more on supporting the education sector.
On his fourth
priority, he said the focus here would be to grow the country’s external
reserves, adding that his fifth priority would be to support efforts at
diversifying the economy through the CBN’s intervention programmes in
the agriculture and manufacturing sectors.
“We are confident that
when implemented, these measures will help to insulate our economy from
potential shocks in the global economy.
“In my second term in
office, part of my pledge is to work to the best of my abilities in
fulfilling these objectives,” he added.
Speaking on strategies to
achieving these priorities, Emefiele said the CBN would implement its
agenda under various initiatives.
This, he noted, would enable
the bank to achieve macroeconomic stability, exchange rate stability,
financial system stability, financial inclusion, access to credit,
lending to MSMEs, consumer credit and mortgage lending among others.
Macroeconomic stability
In
the area of macroeconomic stability, the CBN governor said, “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.”
Working with other stakeholders, he said the
bank intended to bring down the cost of food items, which had
considerable weight in the Consumer Price Index basket.
He said, “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.”
Exchange rate stability
In
achieving exchange rate stability, Emefiele said the apex bank would
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 the economy.
He said, “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
continues 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.”
He said the CBN
would launch a Trade Monitoring System in October this year which is an
automated system that would reduce the length of time required to
process export documents from one week to one day.
Financial system stability
On
financial system stability, the apex bank boss said the CBN would
continue to improve its onsite and off-site supervision of all financial
institutions, while leveraging data analytics and in-house experts
across different sectors, to improve its ability to identify potential
risks to the financial system as well as risks to individual banks.
Development finance
Emefiele
said in keeping with the recent Presidential Directives, 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.
Financial inclusion
In the
area of financial inclusion, Emefiele said over the next five years,
through initiatives and policy measures such as the Shared Agent Network
and the payment service banks, he intended to broaden access to
financial services to individuals in underserved parts of the country.