The Central Bank of Nigeria (CBN) has reiterated its commitment to further capitalise banks in the country, emphasizing that the move is for the common good of the nation.
This was disclosed by the CBN Governor, Dr. Olayemi Cardoso, at the launch of the book “Power of One Man,” authored by Dr. Ray Echebiri, held over the weekend.
Represented by Mr. Philip Ikeazor, Deputy Governor, Financial System Stability Directorate, Cardoso highlighted the necessity of the current banking consolidation effort.
“Incidentally, the current manifesto of the Central Bank has embarked on another round of banking consolidation,” he said.
Reason for Consolidation
Cardoso explained the rationale behind the consolidation, drawing parallels with previous efforts. “Professor Soludo wanted to make the banks robust, resilient, and fit for purpose to grow the economy. And that is exactly the same reason we are embarking on a similar journey today,” he stated.
He elaborated on the capital requirements, noting, “International banks are moving from N50 billion to N500 billion, which is 10 times, similar to Soludo’s 12 and a half times, and national banks are moving from N25 billion to N200 billion, roughly about eight times.
This exercise is also to strengthen the financial system, make it robust to be able to meet the expected headwinds.”
Economic Conditions
Cardoso also touched on the macroeconomic conditions necessitating the consolidation. “When you do consolidations, you would look at the macroeconomic headwinds, the macroeconomic conditions on ground, and, of course, apply your stress tests.
And when you apply stress tests today, which I’m sure some of the big banks have done, they would have taken a guess where the capital levels were going to land,” he said.
He underscored the importance of a strong banking sector, especially in light of recent economic reforms. “When the current administration came into place, there was unification of FX rates, and there was removal of fuel subsidies.
And the impact on the economy, the manufacturing sector, is beginning to manifest, or has started manifesting in 2024, and will continue over the next few years.”
Avoiding Hyperinflation
Addressing concerns about interest rates and inflation, Cardoso said, “Once you do not tame and control inflation, and you get into hyperinflation, it takes you several years to get out of it.
We have our brothers in East Africa who are in hyperinflation. We know how hard they’re struggling to come out of that.”
“It is important that we avoid that. How long will you maintain high interest rates? That would be for as long as we are able to control and start to reverse galloping inflation,” he added.
Banking System Transformed
Prominent figures, including former President Olusegun Obasanjo and former CBN Governor Prof. Chukwuma Soludo, lauded the transformative impact of the bank recapitalisation carried out two decades ago.
Obasanjo, represented by former Cross River State governor Donald Duke, praised the team’s efforts. “I believe that I am that one man because I put together the team. It’s like a coach, a football manager, you pick the captain, and the captain was Captain Soludo,” he said.
Lagos State Governor Babajide Sanwo-Olu also reflected on the significance of the book and the ongoing consolidation efforts.
“We’re also at a point where the current CBN and the leadership are going through a similar exercise, banking consolidation, increment in share capital and the rest of it,” he remarked.
The continued emphasis on banking consolidation aims to ensure the robustness and resilience of Nigeria’s financial system, positioning it to better withstand economic challenges and support sustainable growth.
