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The Central Bank of Nigeria (CBN) has disclosed that the proposed bank recapitalisation is needed as a fuel for the government’s $1 trillion economy ambition and a sustainable financial sector in Nigeria.
Speaking at the 2023 Nigeria Sustainability Summit on Tuesday, Balam Mustapha, director of finance policy and regulation at CBN, said the recapitalisation will cushion potential losses and fuel the government’s ambition of reaching a $1 trillion economy by 2030.
“The 2005 bank recapitalisation, which increased minimum capital requirements from N2 billion to N 25 billion, proved its worth just three years later during the global financial crisis. It bolstered the Nigerian banking system, preventing widespread collapse and protecting the economy from severe consequences,” he said.
“Fast forward to today, with new macroeconomic challenges on the horizon. We have an opportunity to build on that previous success. By ensuring banks are adequately capitalized, we can cushion potential losses, fuel the government’s ambition of reaching a $1 trillion economy, and importantly, do so in a way that prioritises sustainability for future generations,” he added.
Mustapha noted that back in 2012, the apex Bank led the charge in terms of a statement of commitment to meet sustainable banking principles and ever since more recently, it has been looking to take things to a much higher level by incorporating climate-related concentrations into the principles.
“So, we’re also key to that global effort to evolve better, you know, not only for this generation of future generations.”
Read also: Inflation, exchange rate pressures to decline in 2024— CBN
Yemi Cardoso, governor of CBN, said last month that the CBN would be directing banks to increase their capital to serve a $1 trillion economy.
“We need to ask ourselves: 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,” he said.
Nigerian banks’ capital adequacy ratio (CAR) measures a bank’s financial strength by using its capital and assets. The current CAR in Nigeria is 10 percent for local banks and 15 percent for banks with international operations.
Data from the CBN’s latest monthly report shows that banks’ CAR rose to 13.0 in May 2023 from 12.8 in the previous month. But reduced year-on-year from 14.4 in the same period of last year.
Mustapha added that as a key financial authority, the CBN, is dedicated to developing protocols that drive us towards net-zero emissions.
“We actively benchmark ourselves against leading nations like South Africa and Malaysia, learning from their best practices and legislation. But don’t be mistaken, Nigeria brings its expertise to the table too,” he said.
He added that the CBN is modeling regulations around climate-related changes
“To tackle climate change head-on, the CBN is actively shaping regulations around environmental concerns. We’re revising our operating principles to integrate climate risk considerations, fully aligned with national climate commitments and the energy transition plan.”
