CBN Set to Recapitalize Banks Over Looming Crisis in Financial Sector

The Governor of the Central Bank of Nigeria (CBN) Mr Godwin Emefiele has revealed plans to recapitalize Nigerian banks, saying that the current N25bn capital could no longer finance large transactions.

Emefiele stated this in Abuja on Monday during the unveiling of his economic agenda for the next five years.

Emefiele, noted that the drop in the value of the naira to the dollar had weakened the capital of banks.

For instance, the apex bank boss recalled that in 2004 when the banks were last asked to recapitalise, the value of a dollar to the naira was about N100.This, he explained, meant that the N25bn capital base of banks when translated into the dollar was about $250m.

However, due to the drop in the value of the nation’s currency which now exchanges for N360 to a dollar, the governor put the translated value of N25bn at just about $75m.

Going by this, it, therefore, means that the value of the capital of each bank had been reduced by $175m.

Based on the number of Deposit Money Banks in the country which stands at 20, the total value of the capital base may have been eroded by about $3.5bn.

Emefiele said going by the huge developmental role the apex bank would want the banks to play in the next five years, it had become imperative to demand their recapitalisation.

Following the announcement of the recapitalisation exercise, Emefiele said the Committee of Governors of the CBN would meet to discuss the new policy.

The meeting is expected to discuss modalities for the recapitalisation exercise as well as approve the framework that would guide the implementation of the policy.

The CBN governor said during the unveiling of his agenda for the next five years that the recapitalisation of banks had become imperative as their current capital could no longer finance large transactions.

He said, “In the next five years, we intend to pursue a programme of recapitalising the banking industry so as to position Nigerian banks among the top 500 in the world.“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.

“Recall that it was Governor (Chukwuma) Soludo in 2004 that did the last recapitalisation we had. He moved the capitalisation from N2bn to N25bn. And I must commend those efforts because it resulted in positioning Nigerian banks not only in Africa but among the top banks in the world in terms of capitalisation.

“It also helps to increase the banking industry’s capacity to take on large transactions. And those are some of the things we badly need today.

“So if you relate N25bn with 2004 exchange rate which was about N100 (to a dollar), N25bn was about $250m. Today, if you relate N25bn at N360 (to a dollar) you will see that it is substantially lower than $75m.

“So what we are trying to say is that the recapitalisation has weakened and there is a need for us to say it is time to recapitalise the banks again.

“It’s a policy thrust which would be discussed at the committee of governors’ meeting and of course, the framework for the recapitalisation of Nigerian banks would be unfolded for the whole world in due course.”

The recapitalisation of the banking sector, which was done in 2005, required the banks to raise their capital base from N2bn to N25bn.

The exercise then saw the emergence of 24 Deposit Money Banks following the merger of some of them as well as the acquisition of many that could not raise the required capital.