Recapitalisation: Experts caution CBN against repeating 2005 mistakes in banking sector

*Leading economists argue though recapitalisation of the country’s Deposit Money Banks has become inevitable, the Central Bank of Nigeria should ensure ‘strategic consultations’ among stakeholders in the banking sector for the process to be seamless and successful

Isola Moses | ConsumerConnect

Against the backdrop of the Central Bank of Nigeria’s (CBN) plans to introduce a new capital base for the Deposit Money Banks (DMBs), economic experts have warned the banking sector regulator against making some mistakes made during the last recapitalisation of commercial banks 2005, in the country.

ConsumerConnect reports Dr. Musa Yusuf, Founder/Chief Executive Officer (CEO) of Centre for Promotion of Private Enterprise (CPPE), and Prof. Segun Ajibola of Babcock University, Ogun State, stated this while both featuring on a Channels TV programme Monday, November 27, 2023.

Dr. Olayemi Cardoso, Governor of CBN

It is recalled Dr. Olayemi Cardoso, Governor of CBN, in his Keynote Address at the 60th Anniversary of the Chartered Institute of Bankers of Nigeria (CIBN), held late Friday, November 24, 2023, in Lagos, had disclosed that the Nigerian banks “do not have sufficient capital” relative to the finance system needs in servicing proposed $1trillion Nigerian economy.

The top economists Monday though agreed to the fact that recapitalisation of the commercial banks had become inevitable in view of economic realities in the West African country, yet they opined such an exercise must be done in a way that the mergers and acquisitions that would result would not lead to massive job cuts in the banking sector.

Dr. Yusuf pointedly declared “what we had in 2005 was very unfortunate. Banks should not be stampeded.”

The CPPE Chief Executive urged the CBN to give banks enough time for what he describes as “systemic migration” in regard to the imminent recapitalisation exercise.

The former Director-General of the Lagos Chamber of Commerce and Industry (LCCI) also suggested a year or two for the banking recapitalisation process, but the Bankers’  Bank should not insist on a short deadline like what was done during the era of ex-President Olusegun Obasanjo.

Commenting on the development also, Prof. Ajibola advocated “strategic consultations” between stakeholders for the recapitalisation process to be fluid and successful.

The CBN should not force banks into unholy alliances, said the economist.

In regard to the needed sufficient capital relative to the finance system needs in servicing a $1trn economy, Dr. Cardoso stated in his speech that “as a first step, the Central Bank will be directing banks to increase their capital.”

The CBN last increased capital base for the commercial banks 2005, at the Prof. Charles Chukwuma Soludo, ex-Governor of the Central Bank of Nigeria and current Governor of Anambra State.

The regulator at the time raised the capital base from initial N2billion to N25bllion.

However, the recapitalisation exercise witnessed how over 80 banks collapsed into about 30 in an unprecedented season of mergers and acquisitions along with attendant job losses in the important industry in Nigeria.