CBN, prepare well for bank recapitalisation

The recent announcement by the Central Bank of Nigeria that it will soon ask banks in the country to recapitalise did not come to many people as a surprise. Since the last edition of the exercise, it became clear that recapitalisation will become a recurring feature of the local banking industry if the lenders are […]

The recent announcement by the Central Bank of Nigeria that it will soon ask banks in the country to recapitalise did not come to many people as a surprise. Since the last edition of the exercise, it became clear that recapitalisation will become a recurring feature of the local banking industry if the lenders are to keep pace with the increasing demands of a growing economy.

According to the CBN governor, Dr Olayemi Cardoso, the planned recapitalisation has become imperative to prepare the banks to support a $1 trillion economy envisaged by the government to be achieved in about seven years from now.

Daily Trust agrees with Governor Cardoso that Nigeria needs sound, strong banks and the first step towards achieving this is to increase their capital bases. But identifying the need for recapitalisation is the first part of the journey. The whole angle to this policy should be a stronger economy, backed by strong banks that will aid development in the country.

However, the information provided by the nation’s number-one banker is incomplete. Nigerians need to be better informed about this plan. How, for instance, will recapitalisation address, in the short term, the current liquidity problem in the financial markets? What will happen to the economy if it does not address the liquidity issue? Would this end up as mere window dressing?

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Other pertinent questions include: are there banks that are in trouble right now? What exactly is to be done in the recapitalisation exercise? In other words, there is a need for a clear road map for this plan.

The policy thrust of the whole programme, and the various roles to be played by the participants in the process, must be spelt out and communicated to the Nigerian people.

Daily Trust strongly advises that the contemplated action must go beyond mere policy. We know that the CBN is yet to work out the details. Therefore, the regulator must not rush into this project without adequate preparation. It should spell out specific strategies that will be deployed to achieve the desired goals and justify such choices. The details must contain information on how the prescribed actions will address the challenges confronting the economy right now.

The value of Nigerian banks has plummeted because of the devaluation of the naira over the years. We need banks that can fund big businesses, including agriculture.

There are obvious advantages that will accrue from the plan. It will attract foreign capital, which can help alleviate the problem of liquidity in the financial system. During the last recapitalisation exercise, some banks did not meet the requirements and were subsequently acquired by others. We expect the same to happen in the planned exercise.

For Nigerians, the forthcoming exercise will allow them to buy the shares of banks and subsequently make profit from such investments. In the last one, that recapitalisation exercise was the first time many Nigerians would be investing in shares of companies listed on the local stock exchange.

During the Charles Soludo-led recapitalisation, banks were asked to raise their minimum capital from N2 billion to N25 billion, which is still officially the minimum capital for banks. However, that figure currently only serves a mere book-entry purpose, as most banks’ capital bases now run into several multiples of that amount.

Now, the question is: what will be the next minimum capital for banks? Will it be N500 billion, or N1 trillion? The amount that CBN settles for will be a good measure of the level of inflation and devaluation that has occurred between the last recapitalisation and now. This means that the issue must be studied thoroughly before its implementation commences.

We also demand that recapitalisation must come with tighter controls over the banks by the regulatory authorities. The last exercise witnessed a lot of regulatory lapses that provided loopholes for sharp practices by unscrupulous elements. Many Nigerians still recall quite vividly that during the 2004-2006 recapitalisation, some banks and their financial advisers, consultants and other investment professionals engaged in all kinds of unethical activities, including but not limited to share price manipulation designed to deceive the investing public.

Therefore, we call on the regulators such as the CBN, the Securities and Exchange Commission and the Nigerian Exchange, to rise to the challenge and ensure that the appropriate regulatory framework and measures are provided for the exercise.

Unlike in the previous exercise, investors now know more about the investment industry, their rights and obligations, as well as the obligations of the banks and other participants involved in the process. Investors are more knowledgeable today than they were some years ago and would not condone any unprofessional conduct by any players in the financial industry.