The Centre for the Promotion of Private Enterprise (CPPE), through its director Muda Yusuf, has emphasized the need for a cautious approach to the proposed recapitalization of banks by the Central Bank of Nigeria (CBN). In a statement issued on Monday, CPPE underscored the importance of minimizing shocks and disruptions to the banking system and the broader economy during this process.
Yusuf highlighted the fundamental purpose of adequate capitalization as ensuring the efficiency and stability of the financial system. He elaborated on how capital adequacy measures are essential for a bank to meet its financial obligations, absorb potential shocks, safeguard depositors’ funds, and support economic growth through investment funding.
Drawing attention to the CBN’s recent announcement of increased capital base requirements for banks, CPPE acknowledged the necessity of periodic reviews to adapt to changing economic landscapes. Yusuf noted that the last major review occurred in 2005, and since then, inflation has significantly eroded the real value of the minimum capital requirement.
CPPE commended the CBN for providing a 24-month timeline for banks to comply with the new capitalization requirements, emphasizing that this would help minimize disruptions in the financial system. The think tank also praised the maintenance of differential capital requirements for various categories of banks to ensure inclusivity and prevent dominance by a few major players.
In addition to advocating for the safety of depositors’ funds and stability in the banking sector, CPPE raised concerns about the high interest rate spreads in the Nigerian banking system and the limited access to credit for small businesses. The think tank urged the CBN to prioritize de-risking the credit space for small businesses to foster economic growth, job creation, and inclusion.
Finally, CPPE called on the CBN to ensure that the recapitalization process does not lead to elevated concentration risks or the deepening of an oligopolistic structure in the banking sector. The think tank stressed the importance of regulatory vigilance to maintain a healthy and competitive banking environment while safeguarding the interests of shareholders, employees, and the banking public.
Overall, CPPE’s statement reflects a cautious approach to the CBN’s recapitalization initiative, emphasizing the need to balance regulatory requirements with the preservation of financial stability and inclusive growth in Nigeria’s banking sector.
