Banks need recapitalisation to survive macroeconomic risks

THE Governor of the Central Bank of Nigeria, CBN, Dr. Olayemi Cardoso has said that the proposed banking recapitalisation was necessary to protect banks from macroeconomic risks and to enable them fund big ticket transactions.

Cardoso stated this while speaking at the 2023 Nigeria Sustainability Summit organised by Access Holdings Plc in partnership with European Sustainable Development Organisation (EOSD) and Financial Nigeria in Lagos.

Represented by the Mr. Haruna Bala Mustapha, Director Financial Policy and Regulation, CBN, Cardoso cited the current state of the economy and the need to guard the banking sector against risks from impact of new policies.

He noted that the N25 billion capital requirements for banks as at 2005 can not sustain the present operational risks in the banking sector today as well as the task of building a $1 trillion economy.

He said: “Here we are in the face of prevailing macroeconomic challenges we are currently facing.

“I don’t need to read them all out. But we can all relate to what is happening now again tying it to the traditional function of capital to cushion on unexpected losses.

“Also to support the aspiration of the current government to build a $1 trillion economy and by the way, one that is rooted in sustainable principles. What do we do? There is a need to take a second look at the existing capital region.

“Recently, a number of policies were rolled out and had an impact on the banking system. I will just mention two. One, the removal of fuel subsidies. Two, the recent forex exchange rate unification.

“Currently, because of the impact of some of these policies, we have seen banks breaching some of the key metrics such as single obligor limit for instance because it is the function of capital, you couldn’t fund a transaction without us looking at your exposure to a single borrower.

“These are some of the potential guard rails that we put in place to check banks’ risk response. In 2005 from $2 billion to $25 billion. At that time N25 billion was equivalent to about $200 million.

“Today, with all the gathering clouds, the risks on the horizon, N25 billion today, I want you to do the numbers, is at best $25 million.

“Now put that in the context of risk and then the capacity to build a $1 trillion economy and also for banks to support their operations.”