N500bn new capital base for banks can turn Nigeria’s economy around—Experts

 

 . Commends CBN Gov, Cardoso on policy

 

COMFORT EKELEME, Business Editor

 

Financial experts have commended the decision of the Central Bank of Nigeria (CBN) to raise banks’ capital base to N500 billion, adding the Nigeria is in dire need of mega banks that can give long term loans.

 

Speaking with Daily Champion in a telephone interview, A Former President, Association of National Accountants of Nigeria (ANAN), Dr. Samuel Nzekwe said that the CBN got it right at this time, stressing that the decision is capable of turning around the economy because investors will now have access to long term loans

 

He said, “I have been saying it that , what we see as mega banks in Nigeria are not mega banks, because I have not seen a bank in Nigeria that can give long term loans to investors as we speak, and a lot of investors need money. They need bank loans to be able to build.

 

“Because of lack of funds, that is why the interest rate is very high. But with this high capitalization, banks will have enough money to be able to perform their financial intermediation role. The CBN got it right, that is a good thing to do,” he said.

 

Also, a Professor of Capital Market, and the Director, Institute of Capital Market Studies at the Nassarawa State University, Prof. Uche Uwaleke, described it as a welcome development ,that will help strengthen the country’s financial system and a potential boost to the stock market.

 

According to him, in view of Naira devaluation following unification of exchange rates, the new calibrated minimum capital requirements was commendable, unlike the uniform capital base of N25 billion stipulated in 2005.

 

He said that the two years period allowed was sufficient to implement the recapitalization, adding that a number of banks had already started the process of recapitalisation before now.

 

“I believe that First Bank, United Bank for Africa, Guaranty Trust Bank, Access Bank and Zenith Banks with international authorisation will have no difficulty meeting this requirement.

 

Uwaleke said that Access Bank had already announced that it was raising N365 billion through rights issue.

 

He suggested a different Cash Reserve Ratio (CRR) for the different banks according to their categories.

 

“Since the new capital base was based on the type of authorisation, the CBN may consider applying a differentiated CRR according to the category of licence.

 

“In view of the young age of Non Interest banks in Nigeria, they should be allowed a longer period, say, three years, to meet the minimum capital requirement,” he said.

 

CBN, had last week Thursday, increased the minimum capital requirement for banks with national licences from N25 billion to N200 billion.

 

 

 

The apex bank also increased capital requirement for banks with regional licences from N15 billion to N50 billion, and those with international licences from N100 billion to N500 billion.

 

A statement issued by the Acting Director, Corporate Communications Department of the bank, Mrs. Hakama Sidi-Ali, the new minimum capital for merchant banks will be N50 billion.

 

Sidi-Ali also announced that the new requirements for non-interest banks with national and regional authorisations are N20 billion and N10 billion.

 

It said that all banks were required to meet the new capital requirements within 24 months beginning from April 1, 2024 and terminating March 31, 2026.

 

To enable them to meet the minimum capital requirements, the CBN urged banks to consider inject fresh equity capital through private placements, rights issues and/or offers for subscription; Mergers and Acquisitions (M&As); and/or upgrade or downgrade of license authorisation.

 

Furthermore, the circular disclosed that the minimum capital shall comprise paid-up capital and share premium only. It stressed that the new capital requirement shall not be based on the Shareholders’ Fund.

 

“Additional Tier 1 (AT1) Capital shall not be eligible for meeting the new requirement. Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio (CAR) requirement applicable to their license authorisation.

 

“In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularise their position,” it added.

 

It noted that the CBN would continue to process all pending applications for banking licenses for which a capital deposit had been made and/or an Approval-in-Principle (AIP) had been granted. However, it said that the promoters of such proposed banks would make up the difference between the capital deposited with the CBN and the new capital requirement no later than March 31, 2026.

 

Meanwhile, the CBN said all banks are required to submit an implementation plan (clearly indicating the chosen option(s) for meeting the new capital requirement and various activities involved with their timelines) no later than April 30, 2024.

 

The CBN also disclosed that it would monitor and ensure compliance with the new requirements within the specified timeline.