Onyema: Banking Sector Recapitalisation Beneficial to Stock Market

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Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr. Oscar Onyema

Obinna Chima and Goddy Egene

The Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, has said the plan by the Central Bank of Nigeria (CBN) to raise the capital base of commercial banks above the current N25 billion minimum level will be beneficial to the stock market.

Onyema, said this in response to THISDAY’s question on the sidelines of an economic conference organised by Rand Merchant Bank Nigeria in Lagos.

He, however, said the NSE was studying the pronouncement by the CBN to know what the banking sector regulator intends to achieve.

Onyema said: “We are still studying the pronouncement. So, we are not quite sure what it means. But what I can say is that historically, if you look at the last big recapitalisation efforts for the banking sector, the capital market was greatly used for raising the financing and indeed it was very beneficial to the capital market to the extent that the market became more sophisticated and a lot more players came into the market from the investors perspective.”

According to the NSE boss, the financial sub-sector on the NSE remains one of the most liquid sectors listed on the stock exchange.

“So, we know that potentially, it could be very beneficial to the capital market. So, we are studying it and we intend to engage and see how we can serve as a trusted partner in implementing that recapitalisation whenever it comes,” he added.

Also, the Chief Executive Officer, Rand Merchant Bank Nigeria/Regional Head, RMB West Africa, Mr. Michael Larbie, who welcomed the policy announcement by the central bank, said a bank was just as strong as its balance sheet.

According to Larbie, the capacity of a financial institution to lend to industries and other sectors would be dependent on the capital it has.

“I think stronger and well capitalised banks would be good for the economy. And the important thing is clear, being big is one thing, but having the right assets and industries to lend to, sensibly, where you don’t have accumulated non-performing loans (NPLs), is really going to be the balancing that we need to have.

“Really, providers of capital expect to get a return on the capital. So, return on capital is going to be very important and I think it is something that our industry, collectively working with the governor and the people at the CBN need to find what the optimal answer is.

“But I have no doubt that well-capitalised banks are certainly good for the economy and no doubt if those capital raised are deployed prudently, then it can go a long way in creating more industry giants to support the economy,” the RMB Nigeria boss added.

CBN Governor, Mr. Godwin Emefiele, while announcing the plan to recapitalise the banks, said the 2004 banking industry recapitalisation, which increased banks’ capital base from N2 billion to the current N25 billion, had weakened.

He said: “You will all agree with me that it was Governor Soludo in 2004 that did the last recapitalisation we had, moving the capitalisation from N2 billion to N25 billion.

“And I must commend those efforts because it resulted in positioning Nigerian banks not only in Africa, but also being among the banks in the world in terms of capitalisation and it also increases or helps to strengthen the banking industry capacity to take on large ticket transactions- and those are some of the things we badly need today.

“And if you relate N25 billion in 2004 exchange rate, which was about N100 to N25 billion, it is certainly only about $200 million. Today, if we relate N25 billion at N360, you can see that it is substantially even lower than $75 million. What we are trying to say is that recapitalisation has weakened quite substantially and there is a need for us to say it is time to recapitalise Nigerian banks again.”

Meanwhile, the stock market was yet to react positively to the expected impact of the banking recapitalisation plan as the market continued its downward trend.

The NSE All-Share Index fell 0.47 per cent on Tuesday to close at 29,068.68, from 29,809.20, while market capitalisation shed N62 billion to close lower at N13.074 trillion, down from N13.136 trillion the previous day.

In all, 22 stocks lost value, including six banking stocks, while 14 stocks gained, including two banking stocks.

Market operators said it is too early for the market to react to the pronouncement of the CBN governor because the full details of the recapitalisation plan and modalities are yet to be unveiled.