The Governor of Central Bank (CBN), Dr Olayemi Cardoso at a conference of bankers on Friday revealed plans by the Federal Government to embark on another recapilasation of all commercial banks in Nigeria.
According to Cardoso, commercials banks’ current capitalisation is too weak to drive the Federal Government’s plans for the economy, especially with recourse to providing enough capital to achieve President Bola Tinubu’s $1 trillion Gross Domestic Product (GDP) target.
Speaking at the 58th Annual Bankers Dinner by the Chartered Institute of Bankers of Nigeria (CIBN) on Friday night in Lagos, Cardoso said current banks capitalisation cannot handle the $1 trillion GDP size in seven years of Tinubu’s economic plan.
He said: “Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion 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 a first step, we will be directing banks to increase their capital.
“The administration, as outlined in the widely circulated Policy Advisory Council report on the national economy earlier this year, has set an ambitious goal of achieving a Gross Domestic Product (GDP) of $1.0 trillion over the next seven years, with clearly defined priority areas and strategies,” Cardoso said.
“Attaining this substantial target necessitates sustainable and inclusive economic growth at a significantly higher pace than current levels.
According to the CBN boss, the Federal Government has already commenced plans towards banks recapitalisation through fiscal reforms, including the removal of petrol subsidy and the unification of the foreign exchange market rate.
He continued: “The CBN will be directing banks to increase their capital base. Indeed, despite the challenging global and domestic macroeconomic environment, Nigeria’s financial sector has demonstrated resilience in 2023, with key indicators of financial soundness largely meeting regulatory benchmarks.
“Stress tests conducted on the banking industry also indicate its strength under mild-to-moderate scenarios of sustained economic and financial stress, although there is room for further strengthening and enhancing resilience to shocks.
“Therefore, there is still much work to be done in fortifying the industry for future challenges, a topic that I will delve into later in my address.”
Cardoso said over N10 trillion CBN interventions in the real sector affected the banks in achieving their goals, and took the lenders to areas where they had limited expertise.
“Under my leadership, the CBN will address these issues. We will tackle institutional deficiencies, and implement prudent policies.
“Our economy will experience significant improvement as we implement these far reaching measures. The primary mandate of the CBN is to ensure price and exchange rate stability,” he said.
The CBN Governor also gave reasons for the high interest rates in the country. He listed high level of insecurity which has resulted in decreased national output and productivity, infrastructure constraints, business bottlenecks and a culture of poor service delivery, particularly within the public sector, as some of the challenges that further hinder the fortunes of the economy.
“These challenges have led to increased interest rates, discouraging investments in productive activities. Within the banking system, high inflation has affected asset quality and solvency ratios.
“Additionally, the persistent depreciation of the naira poses a significant risk for domestic banks with foreign exchange exposures.
“I want to assure you that while it is indeed a formidable challenge, it is not insurmountable. With the right policy measures, we can overcome these obstacles and pave the way for progress and prosperity,” Cardoso explained.
Cardoso said the removal of petrol subsidy and the adoption of a floating exchange rate, among other government policies, are anticipated to have positive effects on the economy in the medium-term.
