CPPE Urges CBN To Ensure Smooth Recapitalisation Process for Banks

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The Centre for the Promotion of Private Enterprise (CPPE) has issued a call to the Central Bank of Nigeria (CBN), urging the implementation of measures aimed at minimizing shocks and disruptions in the banking system and economy during the ongoing recapitalization phase.

In a statement issued in Lagos on Monday, Dr. Muda Yusuf, the founder of CPPE, underscored the significance of mitigating any adverse effects resulting from the CBN’s recent decision.

Last Thursday, the CBN announced a significant increase in the minimum capital requirements for commercial banks holding regional, national, and international licenses, raising them to ₦50 billion, ₦200 billion, and ₦500 billion, respectively.

Additionally, the CBN elevated the capital threshold for merchant banks with national licenses to ₦50 billion, while setting non-interest banks with regional licenses at ₦10 billion and those with national licenses at ₦20 billion.

Yusuf commended the CBN for providing a 24-month deadline, which he believes will facilitate a smooth transition to the new capitalization standards for banks.

“The proposed recapitalisation of banks should be done in a manner that would minimise shocks and disruptions to the banking system and the economy at large.

“We commend the CBN for giving a timeline of 24 months for banks to comply,” he said.

He commended the CBN on the categorisation of the lenders with differential capital requirements to allow for inclusion and reduce the risk of dominance of the banking space by a few big banks.

The CPPE boss urged the CBN to assure depositors of the safety of their funds in the banking system, irrespective of the current level of capitalisations of banks.

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

He also urged the apex bank to ensure minimum risk to shareholders and employees in the banking system across board.

“It is also imperative to guide against elevated concentration risks and the deepening of oligopolistic structure in the banking system. There are also concerns around the large interest rate spreads in the Nigeria banking system.

“Spread between deposits and lending rates are sometimes as high as 20 per cent, which is one of the highest globally. The tenure of funds in the banking system is extremely short.

“Over 80 per cent of funds are of one year tenure or less, which explains the high level of assets and liability tenure mismatch in the banking system. Access to credit by small businesses remains a major inhibition to economic growth and economic inclusion.

“Small businesses account for over 50 per cent of GDP, but get less than five per cent of credit in the banking system. Financing gap in the Nigeria SME space is about $32.2 billion (over N40 trillion), according to IFC estimates.

“De-risking the credit space for small businesses should be accorded high priority in the new dispensation. This is essential to boost growth, create jobs and deepen economic inclusion.

“The apex bank should caution all players in the banking sector against predatory and other anti-competitive practices in the industry on account of the recapitalisation policy,” he added.

The CPPE boss, who is an economist, explained the implications of the capitalisation aimed at ensuring the efficiency and stability of the financial system.

According to Yusuf, the real issue is that inflation has weakened the value of money overtime which makes recapitalisation imperative and inevitable.

“The essence 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,” Yusuf said.

According to him, Nigerian banks are sound and healthy but that does not eliminate the need for regulatory authority to ensure that the soundness and stability are preserved and improved upon.