New round of banking sector recapitalisation coming - Cardoso

Banks should brace up for a new round of banking sector recapitalization to secure enough capital to serve $1 trillion Gross Domestic Product (GDP) target, Central Bank of Nigeria (CBN) Governor, Dr. Olayemi Michael Cardoso, announced yesterday.

Speaking at the 58th Annual Bankers Dinner by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos, he said President Bola Ahmed Tinubu’s economic plan, is to achieve $1 trillion GDP size in seven years, adding that the current capitalisation of banks cannot handle such economic size.

He said the apex bank is thinking ahead, and will be asking the banks to raise new capital to meet up with the target GDP size.

Cardoso asked: “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”.

Continuing, he said: “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.”

According to him, attaining this substantial target necessitates sustainable and inclusive economic growth at a significantly higher pace than current levels.

“The administration has already commenced this journey through fiscal reforms, including the removal of petrol subsidy and the unification of the foreign exchange market rate,” he said.

“The CBN will be directing banks to increase their capital base,” he added.

Reaffirming the stability of the banking sector, the CBN Governor said:

“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,” he stated.

Cardoso said that 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.

He said the sustained high crude oil prices, exceeding $80 per barrel, have posed challenges for import- dependent countries like Nigeria in managing prices.

However, the widespread tightening of monetary policy, aimed at curbing inflation, has restrained economic activity and suppressed growth.

Cardoso admitted that with recent developments within the domestic economy, it is evident that we are facing significant macroeconomic and social challenges.

These challenges stem from a variety of factors, including adverse global shocks, unfavorable domestic imbalances, structural rigidities, and the unintended consequences of certain corrective policy measures implemented to restore and realign our macroeconomic landscape.

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.

He admitted that a thorough assessment of the economy reveals significant challenges, including high and rising inflation, inadequate foreign exchange supply, depreciation of the exchange rate, limited external reserves, weakened output, and high unemployment.

“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,” he said.

Continuing, he said: “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 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.

“These measures are expected to enhance investor confidence, attract capital inflows, stimulate domestic investment, and ultimately improve the level of external reserves. Additionally, they are expected to contribute to the stabilization of the domestic currency,” he said.

He expressed CBN’s commitment to achieving monetary and price stability.

“This is not just a technical objective, but it has real-life implications for the well- being of our citizens. Through targeted policies, transparent market operations, and coordination between monetary and fiscal authorities, we can ensure a more stable exchange rate, control inflation, and create an enabling environment for businesses and individuals to thrive,” he said.

In his remarks, Minister of Finance and Co-Ordinating Minister of the Economy, Wale Edun, said that President Bola Ahmed Tinubu, has embarked on courageous reforms, recognized worldwide.

He said the President is determined to ensure that the reforms will go on to allow private investment to thrive.

He called for resilience in the face of challenges, adding that the banking industry is healthy and thriving. “Taking the Nigerian banks to Europe and America is a sign to what Nigeria can deliver to the world. The economic reforms are difficult but we need to stay the course and the results are beginning to show,” Edun said.

Also speaking, Group Managing Director/CEO Zenith Bank Plc, and the Chairman of the Body of Banks’ Chief Executive Officers, Dr. Ebenezer Onyeagwu, said the Nigerian banking industry is growing, resilient and spreading fast across Africa, and globally.

He said the banks, in collaboration with the CBN, are working hard to ensure that all issues around FX Forwards are resolved.

He said: “FX Forwards has been caged, directed and the banking sector is moving. We are moving on to ensure that FX Forwards is resolved. By next two weeks, FX Forwards will end. The banking sector supports the activities of the CBN. The banking industry is ready to support the CBN to achieve its goals”.