CBN To Speed Up Recapitalisation Exercise For Banks

The Monetary Policy Committee has asked the Central Bank of Nigeria to fast-track the preparations for the proposed recapitalisation exercise of banks.

The MPC gave the charge at the 294th meeting held to review economic and financial developments.

The bank gave the first hint of a possible recapitalisation exercise last year when the floating of the currency slashed the dollar value of capitalisation of banks in Africa’s largest economy.

The planned recapitalisation will also help in supporting the proposed $1tn economy.

The CBN Governor, however, reopened the debate asking banks to speed up actions to meet up with the exercise, which is still being planned.

The CBN governor said, “The Committee thus, called on the Bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macroprudential guidelines.

“The MPC also enjoined the bank to expedite action on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalized world.”

Although no date has been given for the exercise, a recent report by Ernst and Young estimates that 17 out of 24 banks might not meet the capital requirement from the CBN if it is increased 15-fold from its current N25bn.

The report suggested that the recent plan to increase the capital base of banks may lead to series of mergers and acquisitions (M&A) just like it happened during the last recapitalisation exercise in 2004/2005.

Ernst and Young said, “While the CBN governor gave no indication as to the magnitude of the proposed hike in the capital base, we have assumed what the proposed increment will be based on three different scenarios underpinned on current macroeconomic conditions. On the back of that, we were able to determine the number of banks (across the three licence types) that may fall below the new minimum capital thresholds.

“In a worst-case scenario, i.e., given a capital multiplier of 15, about 17 out of 24 banks would not meet the new minimum capital.”

The N25bn capital base in 2005 was an equivalent of $188.2m but the figure has plunged significantly to about $18.4m.