Former President of the Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola, has cautioned that the Central Bank of Nigeria’s (CBN) ongoing recapitalisation exercise could force smaller banks into “unholy alliances” similar to those witnessed during the 2004 banking consolidation.
Speaking in an interview with ARISE NEWS on Wednesday, Ajibola explained that while the recapitalisation policy was necessary given the current size of Nigeria’s economy, it carried significant risks for banks unable to meet the new capital requirements before the March 31st deadline.
He explained that, “In 2004, it was imposed policy that was never discussed and it came so suddenly that at the end of the day, marriages of inconveniences, unholy alliances, forcing together strange bird fellows and we saw the impact in 2007-2008. Some of us fought against this categorisation but nobody listened.”
The CBN’s recapitalisation policy, introduced earlier this year, requires commercial banks with international authorisation to raise a minimum capital base of ₦500 billion, those with national authorisation to ₦200 billion, regional commercial and merchant banks to ₦50 billion, while non-interest banks are required to meet between ₦10 and ₦20 billion depending on their licence category.
So far, only 14 out of 42 banks have met the new requirements, leaving 28 struggling to raise the necessary funds six months before the deadline.
While describing the current recapitalisation push as a “welcome decision,” Ajibola noted that the exercise had become inevitable, as banks’ capital levels were increasingly inadequate to sustain the volume of transactions in Nigeria’s expanding economy.
“This is an exercise that is worth the while. The level of capitalisation of banks before this exercise was becoming too low to handle the volume of transactions passing through the banking sector. The policy is a welcome decision,” he said.
With the current deadline fast approaching, Ajibola asked a pressing question: “The most fundamental issue now is between now and 31st March, what can the other banks?”
He emphasised the need for proactive measures to address the risks facing banks that may struggle to meet the new capital thresholds.
“We have to talk about risk management. How do we manage the risk inherent in some of these 28 banks not being able to meet the minimum capitalisation level? In 2004, some shareholders lost their investments completely because they could not form alliances with other banks. How do we prevent the kind of unholy alliances, false marriages, with some of the smaller banks being swallowed by bigger banks?” he said.
As for solutions, Ajibola suggested that, “Regulator may try to grant them some extension, if they look at the plans and programs of the shareholder that if given some additional time based on what they could present to the authorities, could they be advertised for best investors from anywhere to come in and rescue them. Is there any thing the regulators can do by maybe encouraging corporate investors.”
Issuing a final warning, he stressed that forced marriages of convenience could undermine the intent of the policy: “In 2004, these alliances did not bring anything good to the banking industry so if just to remain afloat that kind of unholy alliance come into play, it may pollute the entire exercise and erode all the benefits that may come. Everyone should put on the thinking cap.”
Nancy Amaka
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