As the Central Bank of Nigeria (CBN) prepares to implement a new capital base for deposit money banks in the country, economists are advising the apex bank to avoid repeating errors made during the previous recapitalization of commercial banks.
Muda Yusuf, Founder of the Centre for Promotion of Private Enterprise, and Prof. Segun Ajibola from Babcock University, Ogun State, shared their insights on Channels Television’s Sunrise Daily program on Monday.
Both economists concurred that bank recapitalization is unavoidable but emphasized the need for a careful approach to ensure that potential mergers and acquisitions in banks do not result in significant job losses.
“What we had in 2005 was very unfortunate. Banks should not be stampeded,” Yusuf said, urging the CBN to give banks enough time for systemic migration.
He recommended a timeline of one to two years for the process, cautioning against the apex bank imposing a brief deadline, reminiscent of the era of former President Olusegun Obasanjo.
Meanwhile, Ajibola advocated for strategic consultations among stakeholders to ensure a smooth and successful process. He emphasized that the CBN should refrain from pressuring banks into unsuitable alliances.
Last Friday, CBN chief, Yemi Cardoso said Nigerian banks do not have sufficient capital relative to the finance system needs in servicing a $1trn economy.
“As a first step, the Central Bank will be directing banks to increase their capital,” he announced at the 60th anniversary of the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos State.
The most recent instance of the CBN raising the capital base for banks occurred in 2005 under the leadership of Charles Soludo, who is now the Governor of Anambra State. During this period, the capital base was elevated from N2bn to N25bn, resulting in over 80 banks collapsing into approximately 30, marking an unprecedented season of mergers and acquisitions that brought about significant job losses.