Recapitalisation’ll create stronger, more resilient banks, support economic growth, says Cardoso

Olayemi Cardoso, CBN Governor

By Tochukwu Bliss, Abuja

The Governor, Central Bank of Nigeria (CBN), Olayemi Cardoso, has said the Bank will ensure a successful recapitalisation exercise, including providing adequate protection of property rights and interests of minority shareholders.

He also promised to continue to collaborate with relevant financial institutions, the fiscal authorities and the National Assembly to achieve this objective according to the bank’s statement yesterday.

Mr. Cardoso was said to have made the pledge in London, on Tuesday, while speaking to stakeholders on: “The Impact of the Recapitalization of Nigerian Banks”, at the UK-Nigerian Chamber of Commerce.

The Governor, represented by the Bank’s Deputy Governor, Financial Systems Stability, Phillip Ikeazor, restated the CBN’s commitment to fostering stronger, healthier, and more resilient banks capable of withstanding economic shocks and supporting the Government’s goal of achieving a GDP of $1 trillion by 2030.

He was quoted as saying that the anticipated impact of the recapitalisation programme will include an increase in banks’ lending capacity, a boost in the volume of foreign direct investment (FDI), and an increase in foreign exchange liquidity.

He added that the exercise would also contribute to GDP growth, better risk management, improved credit ratings, a diversified ownership base, better governance and strategic decisions, and increased market volume and value, leading to a more vibrant equity market.

“With the recapitalisation programme, our goal is to trigger the emergence of stronger, healthier and more resilient banks,” he said.

He noted that several factors influenced the new minimum capital requirements, including macroeconomic conditions, stress test outcomes, and the need for improved risk management.  

“We will rigorously enforce our ‘fit and proper criteria’ for prospective new shareholders, senior management, and board members of banks, and proactively monitor the integrity of financial statements, adequacy of financial resources, and fair valuation of banks’ post-merger balance sheets,” Mr. Cardoso assured.

He noted the significant opportunity it presents to engage investors, policymakers, and technocrats on the critical issue of bank recapitalisation in Nigeria.

Mr Cardoso explained that since his assumption of office in October 2023, his priorities at the CBN have included achieving monetary and price stability, maintaining a stable exchange rate, controlling inflation, and creating an enabling environment for businesses.

He explained that the recapitalisation directive excluded retained earnings from the minimum capital requirement to simplify capital calculations and enhance transparency.

He elucidated that the decision, rooted in the BOFIA Act 2020, aligns with international standards like Basel III and emphasises core capital elements to improve financial stability.

Reflecting on the successful 2004/5 Banking Sector Reforms, which consolidated the industry, increased capital bases, and boosted resilience against the global financial crisis, the Governor assured that the current recapitalisation initiative aims to build on these achievements.

With the recapitalisation programme, our goal is to trigger the emergence of stronger, healthier and more resilient banks.

Taming inflation

In another development, the Governor also reiterated the determination of the Bank’s Monetary Policy Committee (MPC) to tame inflation through conventional methods.

Mr. Cardoso stated this in an interview with Bloomberg, while sharing key insights on the current state of the market, mainly focusing on the stability of the Naira and inflation rates.

He noted a deceleration in the month-on-month inflation rates, highlighting it as a positive development.

He assured that the Monetary Policy Committee (MPC) members remained vigilant in monitoring inflation trends and ensuring a moderation of inflation numbers.

“MPC members will continue to monitor the trajectory and are determined to ensure that they put inflation under control,” he asserted.

While highlighting a period of stability following previous volatility in the foreign exchange market, he expressed optimism about the recent improvements in liquidity and return of confidence to the market.

He attributed the new development to increased liquidity and a calmer approach from market participants on both the buy and sell sides.

“In the past, people were panicking and front-loading their requests,” he explained, stressing that “Now, a lot of that has calmed down. There’s no inclination to do that because liquidity has returned to the market.”

Mr. Cardoso also highlighted the significant achievement of merging disparate exchange rates into a more unified system.

“We had two different rates; right now, we more or less have one rate. And we believe that this is good. It allows companies to plan,” he stated, emphasising the importance of a predictable exchange rate for economic planning and investment.

Furthermore, he expressed confidence in the current market dynamics, where willing buyers and sellers operate freely, noting that it had contributed to the stability of the Naira.

He, however, stressed the importance of continuous observation and management to ensure the market benefits all participants.

Governor Cardoso highlighted the crucial role of coordinated monetary and fiscal policies in achieving economic stability, adding that the collaboration was essential for managing the macroeconomic fundamentals that influence the market, aiming to provide the best value for the Naira.

Recall that Nigeria’s annual inflation rose to a 28-year high of 33.95% in May, but recent data from the National Bureau of Statistics (NBS), reveals that the month-on-month inflation rate had slowed for the third consecutive month, validating the effectiveness of the CBN’s monetary policy tightening measures.

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