Bank Recapitalisation: Smaller Banks Should Not Be Regulated Out Of Existence- Uwaleke Warns CBN

The Central Bank of Nigeria has been advised to implement its recapitalisation plan with caution so that it does not regulate regional and other smaller banks out of existence.

Professor Uche Uwaleke, President of the Association of Capital Market Academics of Nigeria, gave the warning in reaction to the proposed bank recapitalisation exercise of the CBN.

The CBN Governor, Olayemi Cardoso on Friday last week during his keynote speech at the 58th Annual Chartered Institute of Bankers Dinner announced that banks will be required to raise their capital requirement in other to be able to service a $1trn economy.

Cardoso had said, “It is not just about the stability of the financial system in the present moment… However, we need to ask ourselves, will Nigerian banks have sufficient capital relative to the financial system needs to service a $1trn economy in the near future?

“In my opinion, the answer is no unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As the first step, the Central Bank will be directing banks to increase their capital.”

Uwaleke told THE WHISTLER that the idea of recapitalisation of banks was highly anticipated.

Uwaleke 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. Also, if the experience of 2005 is any guide, the recapitalisation exercise is likely to rejuvenate the stock market.

“But I think the strategy should be somewhat different from the approach adopted in 2005. It should be more about incentives than coercion.

“For whatever it is worth, smaller banks playing at the regional level should not be regulated out of existence.”

Uwaleke said that some Deposit Money Banks like the tier-one banks are already making efforts to increase their capital base.

The first tier-banks are First Bank of Nigeria, United Bank for Africa Plc, Guaranty Trust Bank Plc, Access Bank Plc, and Zenith Bank Plc.

During the 2005 banking sector recapitalisation under Charles Soludo, banks’ minimum capital base rose from N2bn to N25bn.

Regional Banking License rose to N10bn while International Commercial Banking License was increased to N50bn.

Uwaleke said “CBN can use prudential guidelines to strengthen the present tiered arrangements. The use of the CAR (the ratio of a bank’s capital to risk weighted assets) 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.”