FRESH initiatives to recapitalise banks is a sound policy by the Olayemi Cardoso-led Central Bank of Nigeria. On March 28, the Bank rolled out new capitalisation thresholds for banks. The lowest is N10 billion and peaks at N500 billion. Properly implemented, it has the capability to boost the economy, and make Nigerian banks competitive because of the expected growth in their capital base. Cardoso should pursue the policy to its logical conclusion. But he should rework the 24-month timeline to avoid major bank-wide failures.
The new rules prescribe the capital base of a bank with international authorisation at N500 billion; N200 billion for national; N50 billion for regional and merchant banks, and between N10 and N20 billion for non-interest banks. The deadline is March 2026.
This is bound to create ripples, but the CBN is on the right track judging by the dynamics that have occurred since the last recapitalisation by the then governor, Charles Soludo, in 2005.
The critical developments centre on the inflation rate (31.70 per cent currently compared to 17.86 per cent in 2005), and the depreciation of the currency. In 2005, Soludo pegged the capital base flatly at N25 billion. Then, the naira exchanged for an average of N135 per $1. From the $15 million capital base, this translated to a new base of more than $185 million.
Within 18 months and through the sales of shares, mergers and acquisitions, Nigeria emerged with 25 stronger banks from the 89 it had pre-recapitalisation, allowing 14 of them to make the top 1,000 banks in the world. The banks started spreading their footprints across Africa and Europe.
But the financial landscape has changed dramatically. The economy is not as buoyant as it was in 2005. With the minimum wage at N30,000 monthly and economic hardship in full flow, most Nigerians cannot boast of the liquidity they possessed to buy shares now as they did in 2005.
Additionally, with the naira depreciation to about N1,300/$1, Nigerian banks are not competitive again internationally. The N500 billion is estimated at approximately $380 million. No matter, this new prescription will make the banks healthy, and be able to operate globally.
It makes sense that Cardoso is sticking with the 2010 reform by the then governor, Lamido Sanusi, who categorised the banks into international, national and regional entities. This is pragmatic. It enables banks to upgrade, move to a lower category or merge with other bank(s) instead of going under completely.
In the United States, JPMorgan Chase is the largest bank, holding over $3.7 trillion in assets. It is followed by the Bank of America with over $2.45 trillion in assets and Wells Fargo, holding over $1.7 trillion in assets.
But the CBN should guard the recapitalisation with diligence. There are concerns with the average citizen unable to acquire shares, the banks may fall into the hands of the rich, who constitute a tiny fraction of the population. This will affect financial inclusion, which was 74 per cent in 2023. The CBN’s target is 95 per cent by 2030.
In this, the country is awash with crooked money, as kidnappers, terrorists, oil thieves and politicians who loot public funds are eager to launder their filthy lucre, exploiting the recapitalisation exercise. Along with the EFCC, ICPC and other financial agencies, the CBN must prevent the criminal networks from taking over the economy.
During the 2005 recapitalisation and the 2010 follow-up, organised labour said about 9,000 workers lost their jobs. With the CBN and the banking community, the system must examine this and mitigate it to reduce the disruptions to the employment market.
The recapitalisation is creating disquiet because the hiatus between 2005 and 2026 is too long. In future, the CBN should not wait for such long periods before implementing recapitalisation.
