Nigeria’s Deposit Money Banks (DMBs) are gearing up for potential mergers and acquisitions as the Central Bank of Nigeria (CBN) contemplates another round of recapitalization.
The move aims to assess the adequacy of Nigeria’s banking industry and align with President Bola Ahmed Tinubu’s ambitious target of achieving a $1 trillion economy.
The announcement by CBN Governor, Olayemi Cardoso, follows the recent floatation of Nigeria’s currency, the Naira, leading to a significant devaluation against other currencies.
Six months after the Naira’s floatation, the banking sector faces the prospect of reevaluating its capital base.
The recapitalization drive is reminiscent of the 2005 exercise when banks’ capital requirements were increased from N2 billion to N25 billion.
The subsequent increase to N50 billion in 2010 and a subsequent adjustment to N25 billion in 2019 reflected changing economic landscapes.
Analysis of the 2022 financial year indicates that Tier 1 commercial banks, including Access Bank, Guaranty Trust Company, Zenith Bank, and the United Bank of Africa, amassed a combined capital base of N9.6 trillion.
This suggests readiness to embrace the CBN’s recapitalization plan. However, concerns linger about the fate of smaller banks, particularly those established under the current CBN governor, Godwin Emefiele.
The challenges posed by a volatile foreign exchange market and soaring inflation rates further complicate Nigeria’s economic landscape.
President of the Chartered Institute of Bankers of Nigeria (CIBN), Ken Opara, assures that the country’s banks are prepared for the recapitalization objective.
However, industry experts emphasize the need for careful consultation and consideration of the economic reality before implementing such measures.
Mr. Idakolo Gbolade, CEO of SD & D Capital Management, suggests that the present capital base, equivalent to $2.5 billion, is insufficient for a $1 trillion economy.
He recommends a capitalization range of $10 to $15 billion and proposes a two to three-year timeframe for banks to achieve the target.
Aminu Gwadabe, President of the Association of Bureaux de Change Operators of Nigeria (ABCON), underscores the importance of consultation and anticipates mergers for banks unable to meet the capital base demands.
In the academic sphere, Prof. Godwin Oyedokun from Lead City University acknowledges that bank recapitalization strengthens the financial sector, enhancing stability and global competitiveness. However, he notes the potential challenges for individual banks in terms of cost and time.
Source: Daily Post