No More N25bn: CBN to Increase Nigerian Bank Recapitalization Ahead of $1trn GDP Target
- The capital base of Nigerian banks will soon be increased from the current N25 billion
- The CBN governor said this would allow the country to meet up with the $1 trillion GDP target
- He also admitted the country is suffering from high and rising inflation, inadequate FX, and others
Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.
The governor of the Central Bank of Nigeria (CBN), Olayemi Michael Cardoso, told Nigerian banks to prepare for a new round of banking sector recapitalization as the nation works towards the $1 trillion Gross Domestic Product (GDP) target.
He said this at the 58th Annual Bankers Dinner by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos.
Source: UGC
It could be recalled that the last banking recapitalization in 2004 saw banks increase their capital base from N2 billion to the current N25 billion.
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However, Analysts have said that the amount is no longer enough to meet current economic realities.
The current capital is not enough
According to a report by The Nation, Cardoso said that the current bank capitalization would not be able to handle President Tinubu's administration's GDP expansion drive.
He said the country requires sustainable and inclusive economic growth to attain the target.
According to him, the administration has started the journey through fiscal reforms, including the removal of petrol subsidies and the unification of the foreign exchange market rate.
Despite the challenging global and domestic macroeconomic environment, Cardoso said that the country's financial sector has shown resilience.
He added that amid the economic headwinds, banks could meet the domestic macroeconomic environment regulatory benchmarks during the period.
He stated:
Stress tests conducted on the banking industry also indicate its strength under mild-to-moderate scenarios of sustained economic and financial stress, although there is room for further strengthening and enhancing resilience to shocks. Therefore, there is still much work to be done in fortifying the industry for future challenges.
Nigeria facing economic challenges
The CBN governor admitted the presence of significant challenges like high and rising inflation, inadequate foreign exchange supply, depreciation of the exchange rate, limited external reserves, weakened output, and high unemployment.
He said:
These challenges have led to increased interest rates, discouraging investments in productive activities. Within the banking system, high inflation has affected asset quality and solvency ratios. Additionally, the persistent depreciation of the naira poses a significant risk for domestic banks with foreign exchange exposures.
He, however, assured that the obstacles could become progress and prosperity with the right policy measures.
Samuel Oyekanmi, a macroeconomic analyst said the move to increase banks' minimum capital requirement is not a bad idea. He explained that the development would have a significant growth impact on the banking industry as a result of more investments, which could come in the form of foreign direct investments or investments from the domestic front.
He, however, added,
"While there might be fear that it might affect some banks and cause panic, I don't think it would be significantly impactful. This is because the Nigerian is one of the most liquid industries in the country, with significant expansion in recent years, and as per the financials of the publicly listed ones, they appear to be highly capitalized to stand the coming recapitalization."
Earlier, Legit.ng reported that the apex bank failed to hold its monetary policy meeting in September and November, respectively.
Currency in circulation hits all-time high, returns to pre-naira redesign periods
Legit.ng reported that data from the Central Bank of Nigeria shows that currency in circulation in Nigeria has increased to N2.299 trillion in October 2023, the highest since this year.
The amount represents 115.10% compared to the N1.39 trillion recorded in January this year and 8.33% higher than the N2.76 trillion in September.
In October last year, the apex bank withdrew the old N200, N500, and N1000 notes from circulation. It issued new designs, resulting in a temporary decline in currency in circulation as Nigerians exchanged their old naira notes for new ones.
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Source: Legit.ng
