CPPE calls for strong oversight of banks' recapitalisation exercise

The Centre for the Promotion of Private Enterprise (CPPE) has sought the Central Bank of Nigeria’s (CBN) vigilance over the banking sector, emphasising the importance of guarding against predatory and anti-competitive behaviours amidst the new recapitalisation policy.

Highlighting the essential need for minimal disruption within the banking system, the CPPE is advocating a thoughtful review of the banks’ minimum capital requirements.

The Chief Executive Officer of CPPE, Dr. Muda Yusuf, highlighted the necessity of executing the recapitalisation in a way that prevents significant shocks and disturbances to both the banking industry and the broader economy.

Yusuf commended the CBN’s decision to give banks a 24-month compliance period, which he believed would reduce financial system upheavals and facilitate a smoother transition to the revised capitalisation standards.

The CPPE boss reassured that with the approach and timeline set by the CBN, the risk associated with bank failures or forced mergers and acquisitions would be substantially low.

He also lauded the decision to retain the existing bank categorizations with differential capital requirements, saying the measure would promote inclusion and prevent a few large banks from dominating the market.

Yusuf noted that the last significant update to the capital requirements occurred in 2005, under President Olusegun Obasanjo with Prof. Chukwuma Soludo as the CBN governor. Since then, he said, inflation has considerably diminished the real value of the capital thresholds.

He said for instance, the N25 billion required for a national bank in 2005, when the exchange rate was around N130 to a dollar, would be roughly equivalent to $192 million.

Yusuf underscored the imperative of recapitalisation due to inflation’s impact on currency value over time, aiming to safeguard depositor funds, enhance financial system stability, improve the resilience of the banking sector, and better position banks to support economic growth.

Yusuf further urged the CBN to reassure depositors about the safety of their funds, maintaining public confidence in the stability and soundness of the banking system.

He said this is particularly crucial given the perceived risks associated with smaller banks.He also highlighted the necessity of minimising risks to shareholders and employees and cautioned against increasing market concentration that could lead to an oligopolistic market.

Yusuf expressed concern over the substantial interest rate spreads in Nigeria’s banking sector and the limited access to credit for small businesses, which significantly hampers economic growth and inclusion. According to him, small businesses, despite contributing over 50 per cent to the GDP, receive less than five per cent of banking system credit.

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