Stakeholders back CBN on bank recapitalization as .Cardoso takes firm control

COMFORT EKELEME, Business Editor

Experts in the nation’s financial services sector have commended the Central Bank of Nigeria (CBN) for its plan to further recapitalise Nigerian banks.
Speaking with Daily Champion, they maintained that the CBN’s decision to increase the capital base of banks is a welcome development, geared towards a better economy.
The CBN governor, Mr Olayemi Cardoso, weekend in Lagos at the 58th Annual Bankers’ Dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) said the apex bank was planning fresh recapitalisation for the commercial banks.
In his reaction, former President of CIBN, Mazi Okechukwu Unegbu who described the decision as a welcome development urged the CBN to be focused in this recapitalization process.
Unegbu, who is presently the Managing Director/ Chief Executive, Maxifund Investment Securities Plc said there is the need for the CBN to give the banks a little time for them to put themselves together.
“This is a good development because most of the banks are not strong presently and the CBN have observed it. I commend this observation,” he said.
According to him, the present CBN governor will do a good job, only if the politicians will allow him.
Similarly, former President, Association of National Accountants of Nigeria (ANAN), Dr Samuel Nzekwe Nzekwe said that Nigerian banks needed to recapitalise because the country ‘s currency had been devalued due to the rising inflation rate in the country.
He said, inflation is so high that what they have in the system might not be enough to back up any financial obligations that may come.
“There is the need for banks to recapitalise so that they can continue to exist. In addition, they need to recapitalise a little bit so that they can be in strong fittings in case of any eventuality and problems,” he said.
Dr, Nzekwe however, emphasised the need for banks to raise their capital base further to meet the challenges of the current time.
He said that Nigerian banks needed to recapitalise because the country ‘s currency had been devalued due to the rising inflation rate in the country.
Speaking further, he stated that Nigerian banks need to recapitalise so as to be in strong fittings in case of any eventuality and problems.
Also , Former Director, Research Department of CBN, Dr Titus Okunronmu, said that the CBN’s planned recapitalisation of banks was a step in the right direction.
Okunronmu said it would put the banks in a better position to grant credit to the public.
He added that this would also help them to face future’s challenges.
The last time CBN directed banks to recapitalise was in 2004, when Charles Soludo, former CBN Governor, raised their capital base from N2 billion to N25 billion. He is the incumbent Governor of Anambra State.

Recapitalization should be more about incentives than coercion –Prof Uwaleke

Meanwhile, a Professor of Finance and Capital Market, Nasarawa State University, Keffi, Prof. Uche Uwaleke has taken a cursory look at the recent speech made by the Central Bank of Nigeria (CBN), governor, Mr. Yemi at the just concluded Chartered Institute of Bankers of Nigeria (CIBN) dinner in Lagos and said it was quite inspiring.
The CBN governor while delivering his keynote address at the event, addressed some issues on the economy and the Nigerian banks
In his opinion titled, ‘Locating the Gaps in the CBN Governor’s Speech’,
Prof. Uwaleke however, stated that the idea of recapitalisation of banks is a welcome one.
But said, it goes without saying that capital is needed to finance big-ticket projects especially when the government is targeting a 1 trillion dollar economy in a few years’ time.
He said, if the experience of 2005 is any guide, the recapitalisation exercise is likely to rejuvenate the stock market.
According to him, the strategy should be somewhat different from the approach adopted in 2005, adding that it should be more about incentives than coercion.
He said, “Some Deposit Money Banks (DMBs (especially many in the FUGAZ category) are already making efforts to increase their capital base.
“The CBN can use prudential guidelines to strengthen the present tiered arrangements. The use of the Capital Adequacy Ratio (CAR) is a good example. The apex Bank can also use differential cash reserve requirements as well as preferential participation in the forex market for well capitalised banks as some of the incentives.
“For whatever it is worth, smaller banks playing at the regional level should not be regulated out of existence,” he said.
Locating the gaps in the CBN Governor’s speech, Prof Uwaleke maintained that it had a few contradictions.
“For example, the CBN Governor says he is confident that “with continued tightening measures for the next two quarters, they will be able to effectively manage inflation.
“As part of the tightening measures, the CBN has been carrying out regular Open Market Operations (OMO) to mop up excess liquidity from the banking system”.
“As a matter of fact “an OMO auction was recently held with a stop rate of 17.5 per cent for the one year tenure”, he says. The Bank has also removed “the cap on the remunerable Standing Deposit Facility (SDF) to increase activity in the SDF window and manage liquidity”.
According to Prof Uwaleke, these aggressive tightening measures end up turbo-charging the interest rates environment thereby shrinking credit to the real sectors of the economy and are therefore inconsistent with his expectation of “an increase in the Gross Domestic Product (GDP) growth rate to 3.97 per cent in the fourth quarter” of 2023.
By his own admission, challenges in the economy “have led to increased interest rates, discouraging investments in productive activities”.
Uwaleke said, the CBN governor equally notes that “countries such as Turkey and Argentina have experienced upward inflationary pressures mainly due to supply shocks, despite several policy rate adjustments”.
He said, Mr Cardoso asserts that “our monetary policies will aim to achieve price stability, foster sustainable economic growth, stabilize the exchange rate of the naira and reduce interest rates to facilitate borrowing and investments in the real sector”.
He said, this statement fails to take into cognizance the policy trilemma facing central banks. Monetary policy tightening may succeed in reducing inflation (especially if caused by monetary factors) and stabilize the exchange rate but not a reduction in interest rates simultaneously. This is an economic reality.
“Mr Yemi cites Brazil, Mexico, and Indonesia as examples of countries “with low unemployment rates of 7.8%, 3.1%, 5.4% respectively”.
According to him, “these are unemployment levels that we in Nigeria should aspire to achieve”. This statement contradicts the NBS new methodology and its latest unemployment figure of 4.1% which is below that of Brazil and Indonesia.
In paragraphs 26 and 27, Uwaleke pointed out that the CBN Governor talks about developments in the payments landscape but missed the opportunity to promote the eNaira and disclose its current status.
“The 30-page speech found no space for other key projects of the Bank, such as the InfraCo and the RT200 programme designed to improve forex supply.
“Much as the plan to refocus the CBN is laudable, every effort should be made not to throw away the baby and the bath water.
“Be that as it may, Mr Yemi Cardoso, in paragraph 30, makes a statement I consider the most impactful where he says “It is crucial to give the same visibility to human condition data as we do to macroeconomic data to ensure that the expected economic progress benefits the masses and helps lift them out of their current dire conditions”.

Own, sustain your macroeconomic models,
AfDB urges govts

In a related development, the African Development Bank (AfDB), on Sunday urged Africa governments to own and ensure the sustainability of their macroeconomic policy models.
The Division Manager of the Macroeconomic Policy, Sustainability, and Forecasting Division of the research department of AfDB, Anthony Simpasa, gave this advice in an interview with the News Agency of Nigeria (NAN) in Abuja.
Simpasa said this while speaking on AfDB’s recently inaugurated 2023 Benchmark Macroeconomic Models for Effective Policy Management in Africa.
He said the essence of the report was to take stock of the modelling experiences across different countries, what the models do, and how effective they were in forming policy decisions and implementations.
”It helps countries channel their resources to areas with more need, especially in poverty reduction, investment decisions, and public investment.
”It is also crucial in allowing us to highlight the significance of macroeconomic modelling in Africa, and that is what this report is all about,” he said.
Simpasa added that one key takeaway was many countries now realised the importance of modelling for their economies, informing policy decisions, and allocating resources from the budget.
”Generally, we have noticed that some countries have also built in-country capacity to develop these models, use them, and customise them to the needs of their specific economy.
”However, there are significant capacity gaps in technical competencies and a need for ownership in many cases.
”This is because of the attrition of staff, either the minister of finance, minister of planning, the CBN, you will find that there needs to be sustainability in the idea of this model.
”These models must consider the distribution in terms of population size and how this will inform medium and long-term forecasting of our economies based on the availability of human capital,” he said.
Simpasa said the bank’s duty was to continually support countries in identifying their gaps and providing the necessary support.
He said ”ultimately, the countries themselves will have to own these models, and this is where the political will comes in.
”And we are encouraging our client countries that our support is financial, but they must continue to build internal capacity themselves.
”And for those exiting, they need to pass on the expertise, the training they have gathered to those that are coming in. This is the only way we are going to sustain the use of these models.”