The Central Bank of Nigeria (CBN) has announced its intention to direct banks to increase their capital base in order to support the government’s vision of achieving a $1tn economy by 2030. The CBN Governor, Dr Olayemi Cardoso, made this known on Friday at the 58th Annual Dinner of the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos.
CBN to Discontinue Direct Quasi-Fiscal Interventions
Cardoso said that the CBN would discontinue its direct quasi-fiscal interventions that had injected over N10tn into the economy in recent years. He said that the apex bank would instead use orthodox tools for implementing its monetary policies.
He explained that the direct interventions were necessary at the time to stimulate economic growth and recovery, but they had also created some distortions and inefficiencies in the financial system.
He said that the CBN would focus on its core mandate of ensuring price and financial stability, while supporting the fiscal authorities in implementing the economic agenda of the President.
CBN to Evaluate Adequacy of Banking Industry
Cardoso said that the CBN would evaluate the adequacy of the banking industry to serve the envisioned larger economy. He said that the administration of President Bola Tinubu had set an ambitious goal of achieving a GDP of $1tn over the next seven years.
He said that attaining this target would require sustainable and inclusive economic growth at a significantly higher pace than current levels. He said that the CBN would ask itself if Nigerian banks had sufficient capital relative to the finance system needs in servicing a $1tn economy in the near future.
He said that the answer was no, unless the CBN took action. He said that as a first step, the CBN would direct banks to increase their capital.
He said that the CBN would also make difficult decisions regarding capital adequacy, liquidity management, risk management, corporate governance, and consumer protection.
He said that the CBN would ensure that banks were well-capitalised, resilient, and competitive, and that they could provide adequate and affordable credit to the real sector.
Bank CEOs and Others in Merger and Acquisition Talks
Following the announcement of the CBN, some bank CEOs and other top executives have reportedly begun moves to raise fresh capital to bolster their respective institutions’ capital base.
According to sources in the banking industry, some of the big banks are eyeing some weaker ones for possible acquisition, while some middle strength and weak ones are looking for alliances that may result in mergers.
The sources said that the merger and acquisition talks were still at preliminary stages, and that the CBN would have to approve any deal before it could be finalised.
They said that the CBN would also consider the implications of any merger or acquisition on the financial system stability, competition, and consumer welfare.
They said that the CBN would likely set a timeline for the banks to comply with the new capital requirements, and that the banks would have to explore various options to meet the deadline.
