Recapitalization may further squeeze lending regime to private sector—Expert
More reactions have continued to come from the unveiled five-year monetary roadmap for the economy by the Central Bank of Nigeria’s (CBN) Governor, Godwin Emefiele.
A development economist, Mr Johnson Adeoye, told Business Hilights in a telephone interview that “The hint by the CBN Governor that another round of recapitalization by commercial banks will further discourage lending to the private sector”.
“We all are aware that even now the banks are yet to recapitalize, lending to the real sector had been rare as banks are more interested in mopping up government bonds and treasury bills instead of lending to the private sector.
Continuing, he disclosed that “The main reason why the real sector is not growing is due to banks’ loss of interest in giving out loans to businesses based on the CBN’s inability to reduce its lending rates to the banks”.
He said with the hint on new recapitalization regime, banks will now begin to be more hostile to lending until after the planned recapitalization process is completed.
Governor of the Central Bank of Nigeria (CBN), had in his new five-year vision averred that the drop in the value of the naira to the dollar had weakened the capital of banks.
Emefiele explained that “For instance, in 2004 when the banks were last asked to recapitalise, the value of a dollar to the naira was about N100. This means that the N25billion capital base of banks when translated into the dollar was about $250 million.
“However, due to the drop in the value of the nation’s currency which now exchanges for N360 to a dollar, the translated value of N25 billion at just to about $75 million.
He argued that the above calculation implies that the value of the capital of each bank had been reduced by $175 million, noting that “Based on the number of money deposit banks in the country which stands at 20, the total value of the capital base may have been eroded by about $3.5 billion”.
He therefore added that 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.
However, he revealed that 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.
“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 N2 billion to N25billion. 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 N25 billion with 2004 exchange rate, which was about N100 (to a dollar), N25 billion was about $250 million. Today, if you relate N25billion at N360 (to a dollar) you will see that it is substantially lower than $75million.
“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,” CBN Governor noted.
