THE Central Bank of Nigeria’s (CBN) proposed commercial bank’s recapitalisation has been described as a timely intervention, as Nigeria’s currency problems remain a major trigger to banking liabilities.
The CBN governor, Olayemi Cardoso, on Friday, November 24, in Lagos, said banks should increase their capital base to match up to the Federal Government’s target of a $1.0 trillion economy.
“Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $10.0 trillion economy in (the) near future? In my own opinion, the answer is “no,” unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital,” he said.
The CBN governor did not state the amount for the bank’s recapitalisation in his address. However, economists believe commercial bank’s recapitalisation is long overdue.
The last banking recapitalisation for commercial banks was in 2005, under the former CBN governor and the current Anambra State Governor, Charles Chukwuma Soludo.
The 18-year gap since 2005 has witnessed capital erosion and inflation upsurge and lessened the N25 billion capital base.
Consequently, Nigeria’s currency problems have further exposed the initial capital base to further risks while widening the risk of most commercial banks.
“Generally, on the recapitalisation, the last one we had was in 2005, and you know what the current value of that amount is with the current exchange rate and inflation in 2023,” former Director-General of the Lagos Chamber of Commerce, Muda Yusuf, told The ICIR.
He stressed the need for a strong capital base to support the liabilities of the financial institutions to ensure depositors’ funds are risk-averse.
“There’s an urgent need for the recapitalisation of the banks because of Nigeria’s currency problems. There has to be a minimum capital base for banks, as some are already raising their own system for stability,” he added.
Also in his address, the apex bank governor admitted technology’s role in advancing financial inclusion but warned that infractions in some payment services platforms would be severely sanctioned.
“Recent developments in the payments services landscape have raised concerns regarding the use of technology and the existing licence and regulatory framework. We have observed that some licensees are operating outside the approved activities, breaching the boundaries set for them.
“Any intention or unintended non-compliance will be subject to sanctions, as operators have the responsibility to ensure that they are licensed for the activities they undertake,” he added.
What the numbers say about bank’s liabilities as of September 2023
The proposed recapitalisation of the Nigerian banking system has raised much concern since the CBN governor hinted at the annual bankers’ dinner on Friday, September 24.
As of the end of June 2023, the banking system’s financial soundness indicators (FSIs) remained stable and robust, CBN disclosed in its monetary committee of that month.
It shows that the capital adequacy ratio (CAR) stood at 11.2 per cent, the non-performing loans (NPLs) ratio at 4.1 per cent and the liquidity ratio (LR) at 48.4 per cent.
However, the new CBN governor has raised concern that it was crucial to evaluate the adequacy of the banking industry to serve the envisioned larger economy.
A look at the financial position of some banks shows a minimal capital base when their total assets are deducted from their total liabilities.
According to Investopedia, a financial media website, capital base, used synonymously with the term bank capital, is the value that results when a bank’s liabilities are subtracted from its assets.
The ICIR looks at Zenith Bank, United Bank for Africa (UBA), Access Holdings, Guaranty Trust Holding Company (GTCO), FBN Holdings, Sterling Financial Holdings Company, and Fidelity Bank banks’ nine-month financial statements.
It revealed that Zenith Bank’s capital base stood at N1.92 trillion when its total liabilities of N16.24 trillion were deducted from total assets of N18.16 trillion.
UBA follows it with a capital base of N1.78 trillion when total liabilities of N14.46 trillion are removed from the bank’s total assets of N16.24.
Although Access Bank has the highest total assets among the other banks, its capital stood at N1.64 trillion when liabilities of N19.77 trillion are subtracted from total assets of N21.41 trillion.
FBN Holdings’ capital base stood at N1.37 trillion when total liabilities of N13.08 trillion were removed from total assets of N14.46 trillion. Also, GTCO has a capital base of N1.27 trillion when total liabilities of N7.34 trillion are deducted from N8.62 trillion.
While Fidelity Bank’s capital base stood at N410.75 billion, deducting total liabilities of N5.00 trillion from N5.41 trillion, Sterling Bank’s capital base stood at N165.84 billion when total liabilities of N2.08 trillion is removed from total assets of N2.25 trillion.
The ICIR reported that the naira’s depreciating value erodes banks’ capital base as the margin between assets and liabilities moderates.
For instance, Zenith Bank’s total liabilities increased by 48.91 per cent, from N10.91 trillion as of December 31, 2022, to N16.24 trillion as of September 30, 2023, while UBA’s financial obligation rose by 45.52 per cent, from N9.94 trillion to N14.46 trillion.
Access Bank’s total liabilities rose by 43.57 per cent, from N13.77 trillion to N19.77 trillion, while GTCO’s financial obligation also increased by 33.13 per cent, from N5.52 trillion to N7.34 trillion in the review period.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.