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ON BANKING SECTOR RECAPITALISATION
The Central Bank of Nigeria is on track
As part of the road map for his second term, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele recently reeled off some measures. Top on the agenda is another round of recapitalisation for the banking industry. This is coming about 14 years after the last banking sector consolidation in the country was consummated. Whatever may be the misgivings, the reality of our economic situation as a country has made the proposed idea somewhat inevitable. The depreciation of the naira between 2004 when the last banking sector recapitalisation took place and now has reduced the value of the capital of each Deposit Money Bank (DMB) considerably.
To underscore the desirability of another recapitalisation, Emefiele has argued that the drop in the value of the naira to the dollar had weakened the capital base of most banks in the country. He recalled, for instance, that in 2004 when the banks were asked to recapitalise, the value of a dollar to the naira was about N100. The lastrecapitalisation exercise which was concluded in 2005 under Professor Chukwuma Soludo as CBN governor sawthe banks raising their capital base from N2 billion to N25 billion. The exercise then witnessed the emergence of 25DMBs from 89 following the merger of some of them as well as the acquisition of many which failed to raise the required capital.
However, with the drop in the value of the nation’s currency, which now exchanges for N360 to a dollar, the translated value of N25b is just about $75m. This means that the value of the capital of each bank has been eroded by $175m, and based on the number of domestic banks in the country which currently stands at 20, the total value of the capital base may have been eroded by about $3.5b. Going by the huge developmental role the apex bank would want the banks to play in the next five years, their recapitalisation has become imperative.
There is no trifling the fact that the 2004/2005 consolidation and recapitalisation of commercial banks not only shaped the structure of the Nigerian banking industry significantly but also launched them into global reckoning. It strengthened the banking sector, repositioning them to meet up with the internationalisation of financial and business globalisation best practices. While we do not know the demands of the new capital base for the proposed recapitalisation, we suggest that it must be realistic.
Under Sanusi Lamido Sanusi as CBN governor, the minimum capital base of banks was pegged at N15 billion (US$113 million) at an exchange rate of USD/132.85 then) for Regional Licence, N25 billion (US$188 million) for National Licence and N100 billion (US$753m) for International. But at the current exchange rate, the value of the Regional Licence has dwindled to US$49 million, National Licence to US$82million and the International Licence down to US327.9 million. We believe these considerations would inform the shape of the proposed recapitalisation exercise. We expect the Committee of Governors of the CBN which is expected to meet to discuss the modalities for theproposed recapitalisation exercise as well as approve the framework that would guide its implementation to be rigorous and thorough
While it is necessary to embark on the exercise as soon as possible, we caution that the proprietors of the banks should be taken into confidence in whatever the CBN plans to do. Besides, the monetary authorities should use the proposed recapitalisation as strategies for expanding the economic roles of banks to the entire economy.