Professor Ken Ife, an economist has expressed confidence in Nigerian banks’ capacity to meet the new capital requirements set forth by regulatory authorities.
Ife who is the Lead Consultant on Private Sector Development to the ECOWAS Commission emphasized that Nigerian banks, buoyed by years of robust performance and steady profitability, should not encounter significant hurdles in raising the additional capital needed to comply with regulatory directives.
He spoke against the backdrop of the new minimum capital requirements for Nigerian banks as recently released by the Central Bank of Nigeria (CBN).
Recommended reading: The CBN new minimum capital requirement for Nigerian Banks: The good, the bad, and the downright ugly
Recapitalisation will make Nigerian banks resilient
According to a News Agency of Nigeria (NAN) report seen by Nairametrics, Ife noted that the new minimum capital requirement for Nigerian banks will make them stronger and more resilient.
- “The banks should not have difficulty in raising the new capital requirements considering the profits they had posted over the years.
- “Banks are supposed to be increasing their capital base regularly, maybe every other year.
- “The new capital requirement is not an aggressive increase, it is normal. You need to look at the profit the banks have been posting over the years.
- “When you remove the Cash Reserve Ratio of 45% and the Liquidity Ratio of 30%, what is left will barely be enough to lend to investors.
- “That is why sometimes you see a consortium of many banks coming together to fund one small project,” he said.
According to the expert, the banks would have been keeping 50% of their profit and recapitalising with it over the years.
- “If they had been doing that, by now, they would have even exceeded the new minimum capital requirement stipulated by the CBN,” he said.
He said that when recapitalisation for banks was last done in 2005, N25 billion minimum capital requirements for banks with national licenses amounted to N130 million dollars.
- “Today, that amount is around N170 billion. It is still within the same limit,” he said.
Merger and acquisition options
Ife said that merger and acquisition options were also opened to banks that would not be able to recapitalise within the stipulated time frame.
- “The same thing happened in 2005 when some banks merged and smaller banks were acquired by bigger banks.
- “That reduced the number of banks from 89 to 24. I see the number of banks reducing further due to merger and acquisition,” he said.
Recommended reading: CBN increases capital base for mega banks to N500 billion, smaller banks N200 billion
