The Centre for Promotion of Private Enterprise (CPPE), a leading advocacy organization championing the interests of the organised private sector (OPS) in Nigeria, has set some key issues for the Central Bank of Nigeria (CBN) for consideration in its latest moves to strengthen the financial system through its just published recapitalization requirements for banks in the country.
The Chief Executive Officer of the advocacy group, Dr. Muda Yusuf, in a statement described the apex bank’s policy measure as desirable in the efforts to ensure the nation’s financial system stability, safety of depositors’ money and improved contributions of the banking sector to national development.
Despite the immense benefits of the recapitalization measure, the Centre advised the monetary authorities to ensure that the proposed recapitalization is done in a manner that would minimize shocks and disruptions to the banking system and the economy at large.
The CPPE commended the CBN for giving a timeline of 24 months for banks to comply, noting this will minimize disruptions and dislocations in the financial system and also ensure a smooth transition to the new capitalization regime for banks.
According to the civil advocacy organization, with the current approach and timeline given by the CBN, the risk of banks collapse or hasty mergers and acquisitions should be minimized.
This is even as it commended the apex bank on the maintenance of the current categorization of banks with differential capital requirements– international, national and regional, adding that the categorization is necessary to allow for inclusion and reduce the risk of dominance of the banking space by a few big banks.
To achieve the objectives of the monetary policy measure, the Centre maintained that it was “imperative for the CBN to assure depositors of the safety of their funds in the banking system, irrespective of the current level of capitalizations of banks. It is important to sustain the confidence of the banking public about the soundness and stability of the Nigerian banking system, especially because of the perception and vulnerable risks of smaller banks.
“We implore the CBN to ensure minimum risk to shareholders and employees in the banking system, across board. It is also imperative to guide against elevated concentration risks and the deepening of oligopolistic structure in the banking system. There are also concerns around the large interest rate spreads in the Nigeria banking system. Spread between deposits and lending rates are sometimes as high as 20%, which is one of the highest globally. The tenure of funds in the banking system is extremely short. Over 80% of funds are of one year tenure or less, which explains the high level of assets and liability tenure mismatch in the banking system.
“Access to credit by small businesses remains a major inhibition to economic growth and economic inclusion. Small businesses account for over 50% of GDP, but get less than 5% of credit in the banking system. Financing gap in the Nigeria SME space is about $32.2 billion [over N40 trillion], according to IFC estimates. De-risking the credit space for small businesses should be accorded high priority in the new dispensation. This is essential to boost growth, create jobs and deepen economic inclusion.
“The apex bank should caution all players in the banking sector against predatory and other anti-competitive practices in the industry on account of the recapitalization policy”, the CPPE added.
