Central Bank of Nigeria Hints on Recapitalization of Banks

The Central Bank of Nigeria plans to recapitalize banks:“Banks will therefore be required to maintain higher levels of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system,” he said.”  That is the right thing to do especially since the stock market has simply refused to make amends after the ocean-bottom of 2008.

To achieve Financial System Stability, Mr Emefiele said a resilient and stable financial system was imperative for continued growth of the country’s economy given the intermediation role of a financial institutions, to support the needs of individuals and businesses.

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

“Banks will therefore be required to maintain higher levels of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system,” he said.

Recapitalization/redesigning happened about ten years ago and we lost some brands. This time around, depending on the amount CBN is pegging the new capital requirement; we may experience the same thing. Unfortunately, most banks will not do the recapitalization at the position of strength since it will be a double-whammy: fintechs are there practically asset-light while government wants me to hold more capital to compete with them. When you hold more capital, you may look good on paper but actually you are carrying cost, and that means inefficient on the utilization of the factors of production. But banks need to do the needful because they hold other people’s money!

I see about 6 banks departing the scene after this CBN exercise. It will be hard for them to get new capital at good terms because the market is ferociously tough. Remove the amalgam of fees on customers, they will pile losses as their interest-incomes [where you expect banks to make money from] are largely insignificant!

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