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Will Banking Sector Recapitalisation Happen In 2021?

According to Emefiele, the 2004 recapitalisation, which increased banks’ capital base from N2 billion to N25 billion, has weakened. He plans to pursue a programme that will make the banks rank among the top 500 in the world.

There have been series of questions on whether there will be massive recapitalization in the banking sector this year following continued depreciation of the naira. If it eventually happens, it would align with the  Central Bank of Nigeria (CBN) Governor, Godwin Emefiele’s five-year plan.

When the Central Bank of Nigeria (CBN) Governor Godwin Emefiele unfolded his policy direction for the next five years, recapitalisation of banks topped the list.

Under the impending exercise, banks will raise their capital base above the N25 billion minimum level adopted in 2004. The CBN boss also plans to lead the economy to double-digit growth, single-digit inflation, $12 billion non-oil exports by 2023 and raise financial inclusion to 95 percent by 2024 while retaining the managed-float exchange rate.

The CBN guidelines stipulate that regional banks must have a minimum paid-up capital of N10 billion, national banks, N25 billion and banks with international operations N50 billion.

According to Emefiele, the 2004 recapitalisation, which increased banks’ capital base from N2 billion to N25 billion, has weakened. He plans to pursue a programme that will make the banks rank among the top 500 in the world.

Managing Director/CEO Afrinvest West Africa Limited, Ike Chioke advised that in 2021,  the industry would now require a recapitalisation exercise in the short to medium term as hinted by the Central Bank of Nigeria.

He however said the currency environment and weak investors sentiment pose a big challenge to the exercise.

“The underpriced valuation of the banking sector many hurt banks seeking to raise tier-1 capital while tier-2 capital funding cost may be unaffordable to the current risk environment. The CBN directed that the minimum interest rate on savings deposit be reduced too a minimum of 10 per cent of Monetary Policy Rate (1.25 per cent) , the previous minimum of 30 pr cent of MPR (3.75 per cent) effective from September 1, 2020,” he said.

Even the International Monetary Fund (IMF) believe that Nigeria’s banks needed improved capital.  IMF Monetary and Capital Markets Department Director Tobias Adrian advised the banks to seek higher capital through recapitalisation and also tackle rising Non-Performing Loans (NPLs). 

Emefiele  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 higher level of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system.

“You will all agree with me that it was Governor Charles Soludo in 2004 that did the last recapitalisation we had, moving the capitalisation from N2 billion to N25 billion. And I must commend those efforts because it resulted in positioning Nigerian banks not only in Africa, but also being among the banks in the world in terms of capitalisation and it also increased or helped to strengthen the banking industry capacity to take on large ticket transactions- and those are some of the things we badly need today.”

Other stakeholders said recapitalization would provide more funds for the banks to do business, especially consumer credit, mortgage finance, which they have not been given any consideration.

Also, recapitalisation will give banks the power to take advantage of opportunities in the industry, and lend more to the real sector.

Many banks had eroded their capital due to the high level of NPLs, adding that recapitalisation will present a new lifeline for the banks.

Association of Bureau de Change Operators of Nigeria (ABCON) President Aminu Gwadabe said recapitalisation would help the banks remove toxic assets from their balance sheets which make it difficult for them to lend.

The exercise, he added, will help the lenders attract new foreign and local investors that will provide the needed capital for them to take bigger roles, including investment in infrastructure.

He said the banks were not lending as expected, adding that recapitalisation will provide them with the right capital mix to lend to larger segments of the economy.

Former Executive Director, Keystone Bank Richard Obire said recapitalisation would draw yes and no answers depending on where one stands.

He described the NPLs as high and real, noting that a number of banks, including the tier-1 lenders are affected by the rise in bad loans.

Budget implementation 

Aside banking sector recapitalization, the next big thing that will define Nigeria’s economic performance  in 2021 is the execution of the N13.58 trillion budget.

An Economist, Boniface Chizea, says the  implementation of the 2021 Budget at the beginning of the year will positively impact the prospects of the economy in the year under review.

Chizea, who is the Chief Executive Oficer of BIC Consultancy Services, said: “It is a good development that the budget has been approved ready for implementation from the first day of the year.

“This is a welcome and cheering news as this development is bound to positively impact the prospects of the economy in the year under review”, he said.

He recalled that Year 2020 was a year when the Nigerian economy witnessed its worst performance in recent memory due to a combination of deleterious factors.

He identified the factors to include the COVID-19 pandemic which set in toward the end of the first quarter of the year 2020 and the EndSARS protests that occurred in October 2020.

Other factors include the lackluster performance of the oil market and the mixed fortunes of the exchange rate of the Naira, among others.

Chizea urged government to efficiently and cleverly implement some of its programmes and policies in the new year, adding that there was the expectation that Nigeria would witness some growth in its economy.

According to him, there are  a flurry of paliative programmes put in place upon the commencement of the pandemic, notably by the Federal Government’s Economic Sustainability Plan and the programme by the Central Bank of Nigeria.

He said: “What is certain is that the activation of the various programmes have been problematic.

“This is as intending beneficiaries encountered sundry difficulties as they attempted to take advantage of the programmes.

“An attempt must now be made to focus on the needed attention to make accessibility seamless.

“Attention must be focused on worsening incidences of insecurity to life and property to bring this terrifying phenomenon under control,” he added.

The economist, however, expressed the belief that the rate of inflation would maintain its upward trajectory in the new year as there were no redeeming features in the horizon.

He said that food inflation would be on the rise as farmers are kept away from their farms due to the fears of kidnappings undermining production as scarcity results.

He also expressed the belief that as the African Continental Free Trade Agreement came on stream early in the year, the authorities would make every efforts to optimise on the inherent opportunities.

“Now that the land borders have been reopened, efforts would be made to make the commencement of interactions seamless,” he said.

He urged government to avoid the temptation to lock down the economy as attention is paid to the resurgence of COVID-19 infections due to the pandemic.

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