The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has announced that the apex bank is set to recapitalise Nigerian commercial banks.
This disclosure was made by the CBN Governor earlier today at the CBN head office in Abuja during unveiling the apex bank’s new monetary policy roadmap for a 5-year tenure(2019-2024).
The Central Bank Chief said the aim is to re-position the Nigerian banks among the top 500 banks in the world, while also reducing the risks and the possible impact of any economic crises on the financial sector. According to Emefiele;
“In the next 5 years, we intend to pursue a programme of recapitalising the Nigerian banking industry, so as to re-position Nigerian banks among the top-500 in the world.”
Recall that in July 2004, the Central Bank, under the leadership of Prof. Charles Chukwumah Soludo, announced the recapitalisation of the banking sector from N2 billion to N25 billion with effect from December 31st, 2005. The initiative by the apex bank led to the reduction of the total number of banks in Nigeria to 24 down from 89.
Why is this important? The move by the apex bank is largely due to the need to mitigate the crises in the financial sector, as well as improve the current state of commercial banks’ capital base of N25 billion which has substantially weakened.
To illustrate this, take into consideration the recent merger/acquisition of Diamond Bank Plc by Access Bank Plc in 2018 which became necessary mainly due to the financial crises that befell the former lender.
[Read Also: Access Bank and Diamond Bank Merger]
Furthermore, the take-over of Skye Bank Plc by the Asset Management Company of Nigeria (AMCON) in 2018, coupled with other deficiencies in capital adequacy and liquidity requirements in the sector, really give credence as to why it has become important to recapitalise the sector.
The need for a resilient financial system: The Central bank governor stressed the need for a simple and resilient financial system. He said this is imperative in order to ensure continued economic growth, given the role the financial institutions play in supporting the needs of individuals and businesses.
“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.”
What this means to Nigeria: An increase of the capital base of Nigerian banks would strengthen the banks and in turn, deepen activities within the industry. However, the move could have a far-reaching effect on employment in the sector, seeing as some employees may lose their jobs.
That notwithstanding, the recapitalisation of the banks is expected to improve the financial health of the banking sector, whilst helping the commercial banks to appreciate in terms of performance.