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As the economists and other stakeholders are busy reeling out the merits and demerits of the recapitalization policy, there is every need to pay greater attention to consultations with relevant stakeholders on policies and the critical role of communication in restoring the confidence of Nigerians both in the country and in the diaspora in the nation’s economy.
By Goddy Ikeh
THE recent announcement of the recapitalisation of banks in the country by the Central Bank of Nigeria, CBN, has been received with mixed reactions with some stakeholders hailing the policy, while some others warned of the negative consequences of the policy. According to the CBN, the capital base of banks with international authorisation has been increased to N500 billion, while that of national banks is increased to N200 billion.
The apex bank directed that commercial banks with regional authorisation are to achieve a N50 billion capital base, while merchant banks will shore up their capital base to N50 billion. The CBN also directed that non-interest banks with national and regional authorisations should raise their capital base to N20 billion and N10 billion, respectively.
Reacting to the proposed recapitalisation, the Centre for the Promotion of Private Enterprise, CPPE, advised that the proposed recapitalisation of banks should be carried out in such a way that it does not result to huge shocks and disruptions in the banking system and the economy at large.
Muda Yusuf, director of the CPPE, said in a statement recently that the reason behind the recapitalisation was to ensure efficiency and stability of the financial system. Yusuf explained that capital adequacy is necessary in order to ensure that banks meet their financial obligations and absorb any shocks resulting from losses.
“It measures the financial soundness of a bank, ensures the safety of depositors’ funds, deepens financial intermediation and enhances the capacity to support economic growth through the funding of investments,” he said.
He recalled that the last major review of the minimum capital requirement for banks in the country was in 2005, about 18 years ago.
“That was under former President Olusegun Obasanjo, with Charles Soludo as the CBN governor. But since then, the value of the minimum capital had been significantly eroded by inflation,” he said.
According to him, the official exchange rate in 2005 was about N130 to the dollar.
“This meant that the N25 billion for a national bank, for instance, was equivalent to $192 million. The naira equivalent today is about N250 billion, while for the International Banking license, it would be about $384 million, an equivalent of about N500 billion. The reality is that the capitalization requirement has not increased materially in real terms, when adjusted for inflation.
“The real issue is that inflation has weakened the value of money over time which makes recapitalisation imperative and inevitable. The essence is to ensure the safety of depositors’ funds, strengthen the stability of the financial system, deepen resilience of the banking system and reposition the bank to support growth,” he added.
He explained that reports from the CBN attest to the fact that Nigerian banks have good soundness indicators. “Nigerian banks are adjudged to be generally healthy. But this does not diminish the need for regulatory authority to ensure that this soundness and stability are preserved and improved upon, especially because of the recent macroeconomic headwinds. This, perhaps, is what informed the current policy of the CBN to review the capital base.
“We commend the CBN for giving a timeline of 24 months for banks to comply. This, according to him, will minimize disruptions and dislocations in the financial system. It would also ensure a smooth transition to the new capitalisation regime for banks,” he added.
In its reaction early in April, the Association of Corporate & Marketing Communication Professionals of Banks, ACAMB, stated that the banking public should be assured that banks in the country have the wherewithal to meet the recent directives of the CBN on the recapilitalisation of banks.
The association, in a statement signed by its President, Rasheed Bolarinwa, affirmed its support for the CBN’s recapitalisation moves.
“This support underlines ACAMB’s belief that while Nigerian banks are globally regarded as safe, resilient and thriving, there is always room for growth. As Nigeria seeks to aggressively unlock its innate potential to become a global emerging economy, banks must also stand ready to play their crucial roles of financial intermediation.
“The import of the recapitalisation announced is that Nigerian banks are safe and reliable, but the apex bank, in its developmental mandate, is leading the banks to strengthen their capacities to meet competitive domestic and global financial needs.
“This overarching theme that runs through the circular and its explanatory notes further affirms the soundness of the banking sector in line with several rating reports on Nigerian banks by leading local and international rating Agencies,” he said.
The ACAMB President commended the CBN for its clear modality for the recapilitalisation that allows addition of share capital and premium as against the previous regime of shareholders’ fund.
He stressed the capacity of the various banks to meet the recapitalisation directive within the stipulated timeframe.
According to him, ACAMB particularly notes the distinctive definition of the new minimum capital base for each category of banks as the addition of share capital and share premium, as against the previous use of shareholders’ funds.
“We urge the public to take note of this change. As it stands, banks are on the same page and as such, there is no need whatsoever for any fear, as the banks have the capacity to meet the recapitalisation in line with allowable options stipulated by the apex bank.
“All facts point to a win-win for the Nigerian banks, the financial market and the economy under this recapitalisation.
Bolarinwa further assured that the CBN’s recapitalization drive will strengthen the economy and further strategically position Nigerian banks as worthy continental and global competitors.
He pledged support and cooperation of banks in the implementation of the recapitalization programme.
“The banking industry will continue to work with financial authorities to build up the economy. This recapitalisation will put Nigerian banks in better stead to support the strengthening of the economy; the expansion of the real sector, and the building of bigger banking brands that can compete continentally and globally.
“Banks will continue to cooperate with the CBN in the implementation of the recapitalisation programme.
“ACAMB shall also be engaging all stakeholders in order to ensure balanced and factual representation as the recapitalisation progresses.
“ACAMB reassures all depositors and shareholders to keep about their businesses with the Nigerian banks without fears,” he added.
But the Nigeria Labour Congress, NLC, and the Association of Senior Staff of Banks, Insurance and Financial Institutions, ASSBIFI, have in their reaction, raised concerns over job security among other issues in the new recapitalization policy of the CBN. Recalling that similar exercises carried out in the country in 2005 and 2010 resulted in the loss of 12,000 jobs. The two CBN exercises were carried out under Professor Charles Soludo and Lamido Sanusi in 2005 and 2010, respectively
According to reports, while Soludo’s recapitalisation policy reduced the number of commercial banks from 89 to 24, the Sanusi era reduced the banks to about 20.
Speaking on the new directive on recapitalization by the CBN, the President of NLC, Joe Ajaero, said that the policy of recapitalising of the banks in the country was not new and we had all seen its consequences.
“The truth is that when the capital base of banks becomes eroded, especially by the forces of foreign exchange which renders the capacity of banks to continue serving as major players in the international market and the domestic economy, especially for an economy that is highly exogenously propelled, it becomes imperative that their capital base are shored up.
“We ask ourselves, is there a need for the recapitalisation policy? Yes, there is but who created the environment that undermined the capital base of the banks?
“It is the government’s economic policies, especially the twin policies of hike in the price of petrol and the floatation of the Naira. These had serious consequences for domestic prices of goods and services which shot up through the roof.
“The implication on all financial holdings in Naira is that their real value nose-dived to the extent of the inflation as unleashed by the policies. “What we saw during the last exercise was that many banks were unable to meet the new requirements within the required period while some were able to scale the hurdle. “Those that were unable to scale the hurdle were either bought by other stronger banks or went into mergers to shore up their capital. Very few did not find suitors and went under as a result,” Ajaero told the Sunday Vanguard in a recent interview.
According to him, the implications of these for employment relations are many and varied. For instance, the acquired or merging banks will mean the loss of jobs to many, especially those crossing from the old entities to the new, while those who didn’t have suitors will go under so, will not only lead to job losses but will also lead to loss of gratuities and income for the workers and the general implication for the economy is that the capacity of the economy to absorb new entrants into the job market will be reduced, leading to high unemployment.
“Employers in the sector will seek cost-cutting measures which often begin with workers’ take home. Negotiation of terminal benefits and redundancies will take centre stage and will lead to severe grievances in workplace relations in that sector,’’ he said.
For the President of ASSBIFI, Olusoji Oluwole, the new bank recapitalization has come to stay and it is a good development for the sector and the economy.
“An increased capital base gives banks room to delve into bigger transactions locally and internationally and expand their capacity and offering.
“At moments like this, we usually expect banks to merge or be acquired which have implications on job security.
“We understand this and have expressed our concerns to the CBN, Ministry of Labour and Employment and our labour centre.
“As events unfold we will have a clearer view of what is to come especially with the two-year period of compliance given by the CBN,” he said.
Meanwhile, some of the banks have put in place measures to ensure that the new recapitalization policy will be met by them. For instance, Aigboje Aig-Imokhuede, Chairman of Access Holdings Plc, has assured that the bank would raise 300 million dollars in capital for Access Bank, considering the bank’s strong market position and shareholders’ support.
Speaking on the sideline of Access Holdings’ second Annual General Meeting, AGM, in Lagos, Aig-Imokhuede disclosed that the shareholders of Access Bank at the AGM unanimously backed the Group’s plan to establish a capital raising programme of up to $1.5 billion. They also agreed to the subset initiative to raise up to N365 billion specifically, through a Rights Issue of ordinary shares to its shareholders and that the proceeds of the rights issue will be used to support ongoing working capital needs, including organic growth funding for the group’s banking and other non-banking subsidiaries
Aig-Imokhuede, however, believes that through the planned rights issue the group’s shareholders would support the bank in the journey of recapitalization, adding that Access Holdings has a unique relationship with the capital market in Nigeria and internationally.
While the economists and stakeholders are engaged in discussing the merits and demerits of the new recapitalization policy, some economists have stressed the need for the CBN and the ministry of finance to always engage with relevant stakeholders in the planning and execution of some of the socioeconomic policies of the federal government because of the attendant shocks and negative impacts on the economy and the wellbeing of Nigerians.
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-April 22, 2024 @ 18:09 GMT|
Tags: CBN
