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Highlights:
• The current banks capital could no longer finance large transactions. –Emefiele
• CIBN backs proposal, urges depositors not to panic
• The total value of the capital base that may have been eroded due to rising foreign exchange regimes is put at about $3.5bn.
• To position Nigerian banks among the top 500 in the world.
As part of its efforts at enhancing the quality of banks and ensuring financial system stability, the Central Bank of Nigeria (CBN) is proposing a maximum capital base of N100 billion for banks operating in the country.
Speaking on Monday in Abuja during the unveiling of his economic agenda for the next five years, the CBN Governor, Mr Godwin Emefiele, noted that the drop in the value of the naira to the dollar had weakened the capital of banks.
For instance, the apex bank boss recalled that in 2004 when the banks were last asked to recapitalise, the value of a dollar to the naira was about N100.
This, he explained, meant that the N25bn capital base of banks when translated into the dollar was about $250m.
However, due to the drop in the value of the nation’s currency which now exchanges for N360 to a dollar, the governor put the translated value of N25bn at just about $75m.
Going by this, it, therefore, means that the value of the capital of each bank had been reduced by $175m.
Based on the number of Deposit Money Banks in the country which stands at 20, the total value of capital base that may have been eroded is put at about $3.5bn.
Emefiele said going by the huge developmental role the apex bank would want the banks to play in the next five years, it had become imperative to demand their recapitalisation as their current capital could no longer finance large transactions.
Universal banking to be replaced
Under the proposed new regime, universal banking will be replaced by three tiers of banks, where the lowest capital base would be N15 billion - set aside for those classified as regional banks.
According to the classification, banks with the maximum capital base could operate internationally while national banks whose operations are confined to the country will be required to have N25 billion.
On the other hand, regional banks which are allowed to operate in a minimum of five and a maximum of 10 contiguous states are required to have N15 billion.
Also, banks’ present structure is expected to evolve into a holding company model, with the parent company holding investments in banks and non-core banking independent subsidiaries.
The implication, according to analysts, is that the present configuration whereby banks have subsidiaries in non-related banking institutions with group assets and functioning as a consolidated group with marginal distinction between the bank and the subsidiaries in terms of management and operations will no longer exist.
The present arrangement is thought to have created a platform for the misallocation of depositors’ funds.
CBN, in a meme released at the weekend, said to implement the new licensing regime, it will replace the existing universal banking license with a new one which terms will be restricted to the nature of each bank’s specific activities. The banking licenses available to replace the current universal banking license are detailed in universal banking: monocline banking, commercial, national and regional banks; specialised banking; non-interest banking; microfinance banking and primary mortgage institutions.
Regional banks are expected to have the word “regional” as part of their corporate names. BusinessDay gathered at the weekend that promoters of banks in the country might opt for the holding company structure as they would still prefer to maintain the status quo no matter the circumstances.
In fact, the adoption of the model becomes necessary when a licensed bank decides to expand into other type(s) of banking or financial services. It also implies where a shareholder owns or controls a minimum of 20 percent of one bank, the same level of ownership is exerted on other financial institutions within the holding company.
CBN equally anticipated the development when it stated in the memo that “some banks/banking groups may wish to retain non-core banking businesses. For these, it will be a requirement to do the following: •Evolve into a holding company model where a non-operating HoldCo holds the investments in the bank and each non-core banking operation in a subsidiary arrangement, and •Comply with CBN requirements for the establishment of HoldCos which will include a detailed business case for engaging in any non-core banking operation. The business case will include the corporate and risk management frameworks that should be put in place to demonstrate how depositors’ funds from core banking business will be ring-fenced from non-core banking business.
CBN, in a memo signed by J. O. Ajewole, acting director of banking supervision, said: “In this regard, a draft ‘Review of Universal Banking Model’ is hereby released as exposure draft to the industry for comments/inputs”. Justifying the proposed abolition of the universal banking structure, CBN recently said that banks had limited skills to cover the entire spectrum of business of the current banking groups, adding that banks are organised as “operating holding companies” playing multiple roles as an operating entity.
“Typically, banks are sole or majority shareholders in the subsidiary financial institutions with overwhelming powers at board and management levels. Limited penetration and specialisation, as a result of the insufficient niches which have not been appropriately served, economic/systemic risks i.e. ‘too big to fail syndrome’, regulatory arbitrage/regulator handshakes and weak group corporate governance”, CBN said
Committee of Governors of the CBN to meet:
Following the announcement of the proposed recapitalisation exercise, Emefiele said the Committee of Governors of the CBN would meet to discuss the new policy.
The meeting is expected to discuss modalities for the recapitalisation exercise as well as approve the framework that would guide the implementation of the policy..
He said, “In the next five years, we intend to pursue a programme of recapitalising the banking industry so as to position Nigerian banks among the top 500 in the world.
“Banks will, therefore, be required to maintain a higher level of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system.
“So what we are trying to say is that the recapitalisation has weakened and there is a need for us to say it is time to recapitalise the banks again.
“It’s a policy thrust which would be discussed at the committee of governors’ meeting and of course, the framework for the recapitalisation of Nigerian banks would be unfolded for the whole world in due course.”
Chartered Institute Of Bankers supports the policy
Commenting on the development, the President, Chartered Institute of Bankers of Nigeria, Dr Uche Olowu, said that there was no need for people to panic or have any fear about the financial system.
He said that the announcement of an intending capital increase in the banking sector was a welcome development.
“Ordinarily, in other climes, you continue to look at the risks that you will take because of the opportunities that you see in them. You ask them to recapitalise because of the opportunities that will come. We need to beef up the capital base.” he said.
He said that some banks were moving into the regional regions and needed to shore up their capital to beef up more confidence.
He stated, “Even with the latest International Financial Reporting Standard, it also affects capital. So it is important that they begin to address it based on their capital base.
“If you are raising your capital, it is based on the risk you are taking. Capital is a function of the business that you want to do. There is already a minimum capital, if you now feel you want to do more, it is a function of the risk you want to take.”
Providing more insights on his economic agenda which centred on five major priorities, the CBN governor said he would work closely with the fiscal authorities to achieve double-digit growth rate within the next five years.
He said during his second term in office, his first priority would be to ensure domestic macroeconomic and financial stability.
This, he said, would be followed by the need to foster the development of a robust payment system infrastructure that would increase access to finance for all Nigerians thereby raising the financial inclusion rate in the country.
The governor said his third priority would be to continue to work with Deposit Money Banks to improve access to credit for not only smallholder farmers and Micro, Small and Medium Enterprises, but also consumer credit and mortgage facilities for bank customers.
Emefiele said the CBN’s intervention support would also be extended to the youth population who possessed entrepreneurship skills in the creative industry.
During this intervention period, the apex bank boss said the CBN would encourage Deposit Money Banks to focus more on supporting the education sector.
On his fourth priority, he said the focus here would be to grow the country’s external reserves, adding that his fifth priority would be to support efforts at diversifying the economy through the CBN’s intervention programmes in the agriculture and manufacturing sectors.
“We are confident that when implemented, these measures will help to insulate our economy from potential shocks in the global economy.
“In my second term in office, part of my pledge is to work to the best of my abilities in fulfilling these objectives,” he added.
Speaking on strategies to achieving these priorities, Emefiele said the CBN would implement its agenda under various initiatives.
This, he noted, would enable the bank to achieve macroeconomic stability, exchange rate stability, financial system stability, financial inclusion, access to credit, lending to MSMEs, consumer credit and mortgage lending among others.
Macroeconomic stability
In the area of macroeconomic stability, the CBN governor said, “We intend to leverage monetary policy tools in supporting a low inflation environment while seeking to maintain stability in our exchange rate.
“As a result, decisions by the Monetary Policy Committee on inflation and interest rates will be dependent on insights generated from data on key economic variables.”
Working with other stakeholders, he said the bank intended to bring down the cost of food items, which had considerable weight in the Consumer Price Index basket.
He said, “Our ultimate objective is to anchor the public’s inflation expectation at single digit in the medium to long run.
“We believe a low and stable inflationary environment is essential to the growth of our economy because it will help support long term planning by individuals and businesses.
“It will also help to lower interest rates charged by banks to businesses thereby facilitating improved access to credit, and a corresponding growth in output and employment.”
Exchange rate stability
In achieving exchange rate stability, Emefiele said the apex bank would continue to operate a managed float exchange rate regime in order to reduce the impact which continuous volatility in the exchange rate could have on the economy.
He said, “We will support measures that will increase and diversify Nigeria’s exports base and ultimately help in shoring up our reserves.
“While the dynamics of global trade continues to evolve in advanced economies, Nigeria remains committed to a free trade regime that is mutually beneficial but particularly aimed at supporting our domestic industries and creating jobs on a mass scale for Nigerians.
“We intend to aggressively implement our N500bn facility aimed at supporting the growth of our non-oil exports, which will help to improve non-oil export earnings.”
He said the CBN would launch a Trade Monitoring System in October this year which is an automated system that would reduce the length of time required to process export documents from one week to one day.
Financial system stability
On financial system stability, the apex bank boss said the CBN would continue to improve its onsite and off-site supervision of all financial institutions, while leveraging data analytics and in-house experts across different sectors, to improve its ability to identify potential risks to the financial system as well as risks to individual banks.
Development finance
Emefiele said in keeping with the recent Presidential Directives, he intended to boost productivity growth through the provision of improved seedlings, as well as access to finance for rural farmers in the agricultural sector, across 10 different commodities namely rice, maize, cassava, cocoa, tomato, cotton, oil-palm, poultry, fish, and livestock/dairy.
“We believe these measures will help to boost not only our domestic outputs but also improve our annual non-oil exports receipts from $2bn in 2018 to $12bn by 2023,” he added.
Financial inclusion
In respect of financial inclusion, Emefiele said over the next five years, through initiatives and policy measures such as the Shared Agent Network and the payment service banks, he intended to broaden access to financial services to individuals in underserved parts of the country.
 |
| CBN Governor, Godwin Emefiele |
Highlights:
• The current banks capital could no longer finance large transactions. –Emefiele
• CIBN backs proposal, urges depositors not to panic
• The total value of the capital base that may have been eroded due to rising foreign exchange regimes is put at about $3.5bn.
• To position Nigerian banks among the top 500 in the world.
As part of its efforts at enhancing the quality of banks and ensuring financial system stability, the Central Bank of Nigeria (CBN) is proposing a maximum capital base of N100 billion for banks operating in the country.
Speaking on Monday in Abuja during the unveiling of his economic agenda for the next five years, the CBN Governor, Mr Godwin Emefiele, noted that the drop in the value of the naira to the dollar had weakened the capital of banks.
For instance, the apex bank boss recalled that in 2004 when the banks were last asked to recapitalise, the value of a dollar to the naira was about N100.
This, he explained, meant that the N25bn capital base of banks when translated into the dollar was about $250m.
However, due to the drop in the value of the nation’s currency which now exchanges for N360 to a dollar, the governor put the translated value of N25bn at just about $75m.
Going by this, it, therefore, means that the value of the capital of each bank had been reduced by $175m.
Based on the number of Deposit Money Banks in the country which stands at 20, the total value of capital base that may have been eroded is put at about $3.5bn.
Emefiele said going by the huge developmental role the apex bank would want the banks to play in the next five years, it had become imperative to demand their recapitalisation as their current capital could no longer finance large transactions.
Universal banking to be replaced
Under the proposed new regime, universal banking will be replaced by three tiers of banks, where the lowest capital base would be N15 billion - set aside for those classified as regional banks.
According to the classification, banks with the maximum capital base could operate internationally while national banks whose operations are confined to the country will be required to have N25 billion.
On the other hand, regional banks which are allowed to operate in a minimum of five and a maximum of 10 contiguous states are required to have N15 billion.
Also, banks’ present structure is expected to evolve into a holding company model, with the parent company holding investments in banks and non-core banking independent subsidiaries.
The implication, according to analysts, is that the present configuration whereby banks have subsidiaries in non-related banking institutions with group assets and functioning as a consolidated group with marginal distinction between the bank and the subsidiaries in terms of management and operations will no longer exist.
The present arrangement is thought to have created a platform for the misallocation of depositors’ funds.
CBN, in a meme released at the weekend, said to implement the new licensing regime, it will replace the existing universal banking license with a new one which terms will be restricted to the nature of each bank’s specific activities. The banking licenses available to replace the current universal banking license are detailed in universal banking: monocline banking, commercial, national and regional banks; specialised banking; non-interest banking; microfinance banking and primary mortgage institutions.
Regional banks are expected to have the word “regional” as part of their corporate names. BusinessDay gathered at the weekend that promoters of banks in the country might opt for the holding company structure as they would still prefer to maintain the status quo no matter the circumstances.
In fact, the adoption of the model becomes necessary when a licensed bank decides to expand into other type(s) of banking or financial services. It also implies where a shareholder owns or controls a minimum of 20 percent of one bank, the same level of ownership is exerted on other financial institutions within the holding company.
CBN equally anticipated the development when it stated in the memo that “some banks/banking groups may wish to retain non-core banking businesses. For these, it will be a requirement to do the following: •Evolve into a holding company model where a non-operating HoldCo holds the investments in the bank and each non-core banking operation in a subsidiary arrangement, and •Comply with CBN requirements for the establishment of HoldCos which will include a detailed business case for engaging in any non-core banking operation. The business case will include the corporate and risk management frameworks that should be put in place to demonstrate how depositors’ funds from core banking business will be ring-fenced from non-core banking business.
CBN, in a memo signed by J. O. Ajewole, acting director of banking supervision, said: “In this regard, a draft ‘Review of Universal Banking Model’ is hereby released as exposure draft to the industry for comments/inputs”. Justifying the proposed abolition of the universal banking structure, CBN recently said that banks had limited skills to cover the entire spectrum of business of the current banking groups, adding that banks are organised as “operating holding companies” playing multiple roles as an operating entity.
“Typically, banks are sole or majority shareholders in the subsidiary financial institutions with overwhelming powers at board and management levels. Limited penetration and specialisation, as a result of the insufficient niches which have not been appropriately served, economic/systemic risks i.e. ‘too big to fail syndrome’, regulatory arbitrage/regulator handshakes and weak group corporate governance”, CBN said
Committee of Governors of the CBN to meet:
Following the announcement of the proposed recapitalisation exercise, Emefiele said the Committee of Governors of the CBN would meet to discuss the new policy.
The meeting is expected to discuss modalities for the recapitalisation exercise as well as approve the framework that would guide the implementation of the policy..
He said, “In the next five years, we intend to pursue a programme of recapitalising the banking industry so as to position Nigerian banks among the top 500 in the world.
“Banks will, therefore, be required to maintain a higher level of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system.
“So what we are trying to say is that the recapitalisation has weakened and there is a need for us to say it is time to recapitalise the banks again.
“It’s a policy thrust which would be discussed at the committee of governors’ meeting and of course, the framework for the recapitalisation of Nigerian banks would be unfolded for the whole world in due course.”
Chartered Institute Of Bankers supports the policy
Commenting on the development, the President, Chartered Institute of Bankers of Nigeria, Dr Uche Olowu, said that there was no need for people to panic or have any fear about the financial system.
He said that the announcement of an intending capital increase in the banking sector was a welcome development.
“Ordinarily, in other climes, you continue to look at the risks that you will take because of the opportunities that you see in them. You ask them to recapitalise because of the opportunities that will come. We need to beef up the capital base.” he said.
He said that some banks were moving into the regional regions and needed to shore up their capital to beef up more confidence.
He stated, “Even with the latest International Financial Reporting Standard, it also affects capital. So it is important that they begin to address it based on their capital base.
“If you are raising your capital, it is based on the risk you are taking. Capital is a function of the business that you want to do. There is already a minimum capital, if you now feel you want to do more, it is a function of the risk you want to take.”
Providing more insights on his economic agenda which centred on five major priorities, the CBN governor said he would work closely with the fiscal authorities to achieve double-digit growth rate within the next five years.
He said during his second term in office, his first priority would be to ensure domestic macroeconomic and financial stability.
This, he said, would be followed by the need to foster the development of a robust payment system infrastructure that would increase access to finance for all Nigerians thereby raising the financial inclusion rate in the country.
The governor said his third priority would be to continue to work with Deposit Money Banks to improve access to credit for not only smallholder farmers and Micro, Small and Medium Enterprises, but also consumer credit and mortgage facilities for bank customers.
Emefiele said the CBN’s intervention support would also be extended to the youth population who possessed entrepreneurship skills in the creative industry.
During this intervention period, the apex bank boss said the CBN would encourage Deposit Money Banks to focus more on supporting the education sector.
On his fourth priority, he said the focus here would be to grow the country’s external reserves, adding that his fifth priority would be to support efforts at diversifying the economy through the CBN’s intervention programmes in the agriculture and manufacturing sectors.
“We are confident that when implemented, these measures will help to insulate our economy from potential shocks in the global economy.
“In my second term in office, part of my pledge is to work to the best of my abilities in fulfilling these objectives,” he added.
Speaking on strategies to achieving these priorities, Emefiele said the CBN would implement its agenda under various initiatives.
This, he noted, would enable the bank to achieve macroeconomic stability, exchange rate stability, financial system stability, financial inclusion, access to credit, lending to MSMEs, consumer credit and mortgage lending among others.
Macroeconomic stability
In the area of macroeconomic stability, the CBN governor said, “We intend to leverage monetary policy tools in supporting a low inflation environment while seeking to maintain stability in our exchange rate.
“As a result, decisions by the Monetary Policy Committee on inflation and interest rates will be dependent on insights generated from data on key economic variables.”
Working with other stakeholders, he said the bank intended to bring down the cost of food items, which had considerable weight in the Consumer Price Index basket.
He said, “Our ultimate objective is to anchor the public’s inflation expectation at single digit in the medium to long run.
“We believe a low and stable inflationary environment is essential to the growth of our economy because it will help support long term planning by individuals and businesses.
“It will also help to lower interest rates charged by banks to businesses thereby facilitating improved access to credit, and a corresponding growth in output and employment.”
Exchange rate stability
In achieving exchange rate stability, Emefiele said the apex bank would continue to operate a managed float exchange rate regime in order to reduce the impact which continuous volatility in the exchange rate could have on the economy.
He said, “We will support measures that will increase and diversify Nigeria’s exports base and ultimately help in shoring up our reserves.
“While the dynamics of global trade continues to evolve in advanced economies, Nigeria remains committed to a free trade regime that is mutually beneficial but particularly aimed at supporting our domestic industries and creating jobs on a mass scale for Nigerians.
“We intend to aggressively implement our N500bn facility aimed at supporting the growth of our non-oil exports, which will help to improve non-oil export earnings.”
He said the CBN would launch a Trade Monitoring System in October this year which is an automated system that would reduce the length of time required to process export documents from one week to one day.
Financial system stability
On financial system stability, the apex bank boss said the CBN would continue to improve its onsite and off-site supervision of all financial institutions, while leveraging data analytics and in-house experts across different sectors, to improve its ability to identify potential risks to the financial system as well as risks to individual banks.
Development finance
Emefiele said in keeping with the recent Presidential Directives, he intended to boost productivity growth through the provision of improved seedlings, as well as access to finance for rural farmers in the agricultural sector, across 10 different commodities namely rice, maize, cassava, cocoa, tomato, cotton, oil-palm, poultry, fish, and livestock/dairy.
“We believe these measures will help to boost not only our domestic outputs but also improve our annual non-oil exports receipts from $2bn in 2018 to $12bn by 2023,” he added.
Financial inclusion
In respect of financial inclusion, Emefiele said over the next five years, through initiatives and policy measures such as the Shared Agent Network and the payment service banks, he intended to broaden access to financial services to individuals in underserved parts of the country.
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