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CPPE: Banks’ recapitalisation is to ensure safety of depositors’ funds

CPPE: Banks’ recapitalisation is to ensure safety of depositors’ funds
April 02
00:00 2024

The Centre for the Promotion of Private Enterprise (CPPE) says banks’ recapitalisation would ensure the safety of depositors’ funds.

Muda Yusuf, chief executive officer (CEO) of CPPE, spoke in a statement on Monday.

The apex bank, on March 29, increased the minimum capital requirements for commercial, merchant and non-interest banks.

The capital base for commercial banks with international licences was adjusted to N500 billion, while the minimum capital requirements for national and regional licence holders were pegged at N200 billion and N50 billion, respectively.

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Commenting on CBN’s decision, Yusuf said the purpose of adequate capitalisation is to ensure the efficiency and stability of the financial system.

“The real issue is that inflation had weakened the value of money overtime which makes recapitalization imperative and inevitable,” he said.

“The essence of recapitalisation is to ensure the safety of depositors’ funds, strengthen the stability of the financial system, deepen resilience of the banking system and reposition the bank to support growth.”

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INFLATION ERODED BANKS’ MINIMUM CAPITAL BASE

He also said the last major review of minimum capital requirements was done in 2005 under former President Olusegun Obasanjo, with Charles Soludo as CBN governor.

“But since then, the value of the minimum capital has been significantly eroded by inflation. For instance, the official exchange rate in 2005 was about N130 to the dollar. This meant that the N25bn for a national bank, for instance, was equivalent to $192m,” he said.

“Based on the financial soundness metrics, Nigeria banks are adjudged to be generally healthy.

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“However, this does not diminish the need for regulatory authority to ensure that this soundness and stability is preserved and improved upon, especially because of the recent macroeconomic headwinds.

“This, perhaps, is what informed the current policy of the CBN to review the capital base.”

Yusuf said it is important to sustain the confidence of the public about the soundness and stability of the Nigerian banking system, because of the perception and vulnerable risks of smaller banks.

He implored the CBN to ensure minimum risk to shareholders and employees in the banking system, across the board.

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“It is also imperative to guide against elevated concentration risks and the deepening of oligopolistic structure in the banking system,” he said.

‘TIMELINE FOR BANKS TO COMPLY WILL REDUCE RISKS’

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Yusuf said the timeline of 24 months for banks to comply is commendable and the move would minimise disruptions and dislocations in the financial system.

“With the current approach and timeline given by the CBN, the risk of banks collapse or hasty mergers and acquisitions should be minimized,” he said.

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“It is also laudable that the current categorization of banks with differential capital requirements has been maintained – international, national, and regional. 

“This is necessary to allow for inclusion and reduce the risk of dominance of the banking space by a few big banks.”

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ISSUE OF LARGE INTEREST RATES

Yusuf, however, raised concerns about the large interest rate spreads in the Nigerian banking system.

He said the spread between deposits and lending rates is sometimes as high as 20 percent and one of the highest globally.

“The tenure of funds in the banking system is extremely short,” he said.

He said over 80 percent of funds are of one-year tenure or less, which explains the high level of assets and liability tenure mismatch in the banking system.

Yusuf, however, said de-risking the credit space for small businesses should be accorded high priority in the new dispensation.

This, he said, is essential to boost growth, create jobs and deepen economic inclusion.

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