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Damning report has revealed that banks in Nigeria are not as strong as you and l think.
Infact, only 17 out of the existing 24 Deposit Money Banks may be unable to meet the Central Bank of Nigeria’s capital requirement if it is increased from its current N25bn, according to a report by Ernst and Young.
The new report, titled “Navigating the Horizon: Charting the Course for Banks amid Plans for Recapitalisation”, noted that if the apex bank raised the capital base of commercial banks in the country by 15-fold from the current N25bn, only seven banks may survive.
The CBN Governor, Olayemi Cardoso, had in several fora stated that the apex bank would consider an increase in the minimum capital base of banks in the country as part of its efforts to strengthen their capacity to support Nigeria’s drive to become a $1tn economy by 2026.
The current capital base is stratified based on the type of banking license – banks with regional, national and international licenses are currently expected to maintain a minimum capital base of N10bn, N25bn and N50bn, respectively.
The proposed increase in the capital base is coming nearly two decades after the CBN’s 2004 banking reform, which led to an increase of the then prevailing capital base from N2bn to N25bn.
The 2004 banking reform was characterised by massive mergers and acquisition activities, which ultimately resulted in the reduction of the number of banks in the country from 89 to 25 banks.
Expectedly, the sector would witness rupture, changes soon.
Deposit Money Banks had begun moves to raise fresh capital to bolster their respective institutions’ capital base through preliminary merger and acquisition talks.
The plan by the CBN to increase the capital base of banks will lead to a series of mergers and acquisitions as witnessed during the last recapitalisation exercise in 2004/2005.
YOUNEWS checks revealed that The current capital base is grossly inadequate.
The minimum capital requirements of the banking industry need to be reviewed in the light of the considerable loss of value amid depreciating domestic currency.
During the banking consolidation of 2004, the minimum capital requirement for banks was raised from N2bn to N25bn. The revised capital requirement was an equivalent of $187m.
Today, the same N25bn is the equivalent of just $32.5m.
