One of the high points of 2019 was the disclosure by Central Bank of Nigeria (CBN) Governor Godwin Emefiele that there would be new banking consolidation during his second term in office. The CBN sees new capital for banks option as the key to getting the lenders ready to meet customers’ credit needs and contribute to economic growth. As the clock ticks into 2020, banks are expected to be ready for anything, including a deadline for new capital base which could trigger new mergers and acquisitions, COLLINS NWEZE reports
Calls for banks to go for higher capital base have been on for years and have, in many cases, succeeded. A new demand for bank recapitalisation was announced earlier in the year by Central Bank of Nigeria (CBN) Governor Godwin Emefiele.
He said: “In the next five years, we intend to pursue a programme of recapitalising the banking industry so as to position Nigerian banks among the top 500 in the world. Banks will, therefore, be required to maintain higher level of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system.”
Before that, in April precisely, a voice seeking higher capital for Nigerian banks sounded loud and clear from a distant land.
It was in faraway United States of America that the International Monetary Fund (IMF) asked Nigerian banks to recapitalise and strengthen their capital bases, if they must compete locally and globally.
Director, IMF Monetary and Capital Markets Department, Tobias Andrian, had at the African Session of the April 2019 Spring Meetings of the World Bank, advised Nigeria to seek higher capital for its lenders through recapitalisation and also tackle rising Non-Performing Loans (NPLs) in the sector.
Andrian’s advice got a backing when Emefiele unfolded the bank’s policy direction for the next five years, with recapitalisation of banks on the top list.
Bank recapitalisation is expected to see lenders raising their capital base above the N25 billion minimum level instituted in 2004. The CBN boss also plans to lead the economy into double-digit growth, single-digit inflation, $12 billion non-oil exports by 2023 and raising financial inclusion to 95 per cent level by 2024 while retaining the managed-float exchange rate.
CBN guidelines stipulate that regional banks must have a minimum paid-up capital of N10 billion, national banks N25 billion and banks with international operations N50 billion.
Speaking further on the recapitalisation plans, Emefiele said the 2004 banking industry recapitalisation, which increased banks’ capital base from N2 billion to the current N25 billion, had weakened. He plans to pursue a programme that will make Nigerian banks rank among the top 500 in the world.
According to the CBN governor’s view, the N25 billion capital base of commercial banks has weakened substantially.
Stakeholders’ views on recapitalisation of banks
President/Chairman of Council, Chartered Institute of Bankers of Nigeria (CIBN), Uche Olowu, said the CBN has industry data and right information on why banks should recapitalise.
He said recapitalisation would provide more funds for the lenders to business, especially consumer credit, mortgage finance which are yet to be given the desired consideration by banks. He said recapitalisation would give banks the power to take advantage of opportunities in the industry, and lend more to real sector.
He said many banks have eroded their capital due to high level of NPLs and that recapitalisation would present a new lifeline for the banks.
“For me, recapitalisation of the banks is fine. I have no problem with that, rather, I see opportunities that it presents to the economy and the lenders. It will be a healthy development for the banks to recapitalise. Normally, from time to time, there is always need for recapitalisation of the banking sector. For banks with regional operations, recapitalisa-tion will enable them to raise the needed capital for more coverage,” Olowu said.
Also speaking, President, Association of Bureau de Change Operators of Nigeria (ABCON), Aminu Gwadabe, said that recapitalisation of banks will help the lenders remove toxic assets in their balance sheets that make it difficult for them to lend. He also said that the exercise will help the lenders attract new foreign and local investors that will provide the needed capital for them to take bigger roles, including investment in infrastructure.
He said the banks are not lending as expected, and recapitalisation of their operations will provide them with the right capital mix to lend to larger segments of the economy.
Former Executive Director, Keystone Bank, Richard Obire, said recapitalisation of the banks has both the yes and no answers.
He said the high industry NPLs is real, and that a number of banks, even the tier-1 lenders are affected by the rise in bad loans.
According to him, if the big banks are groaning under the burden of NPLs, what happens to the smaller banks? He said: “Banks capitals have been eroded. In 2004 when the recapitalisation took place, what the exchange rate was at that time, is different from what it is at present. He said that there has been capital erosion in the banks due to Naira depreciation.
“The no side is that it will bring challenge for the banks. Raising capital now may not be easy. If the the macro environment is upbeat, so will be investors. Gross Domestic Product (GDP) growth still sluggish and raising money in such economy will be difficult,” he said.
Obire said that clearly, more capital is required for the banks to be strong and do what they are expected to do.
He also said that recapitalisation of the bank can also lead to drop in quality of service, adding that as the banks get bigger, customers’ complaints resolution will take longer time.
Obire said banks can only have more money to grow their businesses in a growing economy. According to him, every business has the ambition to grow year-on-year, but that would be difficult to achieve under a shrinking economy. To him, all forward-looking banks should look at what would protect their revenues, by identifying and focusing on the healthy side of the economy.
Also, an economist, Okechukwu Unegbu, said the pronouncement by the CBN governor could send panic into the system if not properly managed.
Unegbu, who is presently the CEO of Maxifund Investments and Securities Plc, said beyond recapitalisation, the issue of human capital in the banking industry should also be given attention. “We must understand that everything is not about money coming into the system.
We should be talking about capacity building and the type of personnel behind these institutions. These days, a lot of bankers don’t have career path. Most bankers don’t have job satisfaction. Today, the level of fraud in the system is on the rise and it is a result of deficiency in capacity building.
So, it is not only money that we should be talking about. “If these institutions don’t have the required capacity and you throw money into them, they would probably be out of business before you know it,” he added.
Banks face declining loan demand
Head, Research, Coronation Merchant Bank Limited, Guy Czatoryski, said that lending is a principal responsibility offered by banks to their customers.
He said the challenge with loan advancement in Nigeria is that only few people come forward to borrow given the slow growth in the Gross Domestic Product (GDP).
Czatoryski said the challenge with the banks is that loan demand has dropped significantly in recent years.
He said weak loan demand is the biggest challenge facing banks and will continue next year due to poor economic growth.
He explained that regular bank customers that were borrowing excessively before hardly come back for loans given the poor state of the economy.
Czatoryski said that weak borrowing now witnessed among bank customers has nothing to do with cost of the loans.
“If you tell me that loans are expensive today, they have been expensive in the last 10 years but that did not stop people from taking loans. It is not a question of pricing of the loans but weak demands for products. The industry is weak. It is very important not to confuse that,” he said.
He also said weak demand for loans was affecting the banks’ profitability and ability to grow.