TheCable

Osita Izunaso, chairman, senate committee on capital market and institutions, says banks’ recapitalisation will strengthen Nigeria’s financial system.

On March 29, the Central Bank of Nigeria (CBN) announced an upward review of the minimum capital requirements for commercial, merchant and non-interest banks.

CBN said the increase was necessary due to prevailing macroeconomic challenges and headwinds occasioned by external and domestic shocks.

In a statement on Friday, Izunaso said the new capital requirement is justified by the negative impact of naira depreciation on the capital base of banks over the years.

“The new minimum capital requirements for banks operating in Nigeria, with the objective of ensuring a more safe, sound and stable banking system is a welcome development that will help strengthen the country’s financial system in general,” Izunaso said.

“This new capital requirement is justified by the negative impact of naira depreciation on the capital base of banks over the years, especially following the recent unification of exchange rates.

“The adoption of tiered minimum capital requirements in respect of international, national and regional authorisation is commendable, unlike the uniform capital base of N25 billion which applied in the 2005 banking recapitalisation exercise.

“In view of the strong link between the money and capital markets in Nigeria with most banks quoted on the Nigerian exchange, I have no doubt that the successful implementation of this exercise will have salutary impact on the capital market.

“I commend the CBN for the emphasis placed on injection of fresh capital for the purpose of meeting the minimum capital requirements as opposed to mere reliance on revenue reserves by the banks.”

Izunaso said given the requirement to use only paid-up share capital and share premium for recapitalisation, the majority of banks will turn to the stock market to secure extra funds, either via subscription offers or rights issues.

This, he said, has the potential to deepen the market, increase equities market capitalisation as well as serve as a veritable source of foreign direct investment (FDI) with positive multiplier effects on the economy.

“It is important to point out that this recapitalisation programme comes with unique risks especially when banks opt for the private placement route,” he said.

“The CBN should intensify efforts to ensure that laundered funds are not used to recapitalise the banks and that only fit and proper persons end up as significant shareholders.

“This risk is minimised when banks go through the stock market which offers a screening layer in addition to that carried out by the CBN.”

The chairman commended CBN for the recapitalisation programme, assuring the apex bank and all stakeholders of the support of the senate committee on the capital market in ensuring its successful implementation.