By Dayo Omoogun
Nigeria’s banking sector history has been characterised by a cycle of rapid expansion, failures as well as painful but ultimately profitable Recapitalisation/ consolidation as well as mandatory management removal and replacement. The episodes of failure and their painful consequences which have become unforgettable epochs, particularly the one of the late 1990s when in 1998 alone, 26 banks failed simultaneously, must have triggered the consistent proactive mode of the Central Bank of Nigeria in recent times and this is quite commendable.
The various measures of Soludo’s Recapitalisation /consolidation, of Sanusi’s audit and ₦620b capital injection, and now Cardoso’s recapitalisation stand out boldly as testaments of the apex bank’s readiness to do all that is required not only to avert massive failure in the industry but also to stir economic expansion.
The Cardoso recapitalisation policy which has turned out to be the most significant banking reform since the 2005 Prof. Soludo’s seismic shift in the industry, was initially received with mixed feelings among stakeholders but the huge success of the exercise which was stipulated to end on 31st March, 2026 confirms the wisdom behind the programme. 33 out of 37 banks met the original recapitalisation deadline translating to a 89 percent success score and with the window still open for a few more to climb the new recapitalisation floor, chances are that the final score will just be a shade off 100 percent. It is important and reassuring to stress here that the few banks that are remaining are on their way to reaching the goal according to the CBN and are currently functioning well, so there is absolutely nothing to fear.
Targeted at improving sector resilience, lending capacity, competitiveness and driving the trillion naira economy envisaged by the President Bola Ahmed Tinubu administration, one of the unique features of the 2004- 2006 exercise having created various levels of recapitalisation, is that it allowed the option of choosing a lower category thereby allowing them to “punch according to their weights.”
For a clearer understanding, the summary of the various categories is as follows: ₦500 billion for international commercial banks;
₦200 billion for national commercial banks;
₦50 billion for regional commercial banks; ₦50 billion for national merchant banks; ₦20 billion for national non-interest banks and ₦10 billion for regional non-interest banks.
What this means is that in this dispensation not all banks have to operate nationally or maintain national presence and they are not under compulsion to retain their former statuses. A bank formerly playing within the international market could therefore choose to become just a national market player. Talk about being a bigger fish in a river rather than than being a mere fingerling in a mighty ocean!
It presents the policy as a well thought-out, intentional and considerate blueprint to accommodate and strengthen all existing players as much as possible. By this, the apex Bank in keeping with its role of maintaining financial system stability ensured that there is no undue rattling or pressure on the system.
In celebrating the success, it is noteworthy that many of the banks didn’t just meet the minimum requirements but indeed exceeded the new minimum capital bases and this happened across the categories.
Another strong point of the policy was its insistence on raising fresh capital and the non permission of conversion of retained profits towards meeting the set targets. This has resulted in the attraction of an unprecedented ₦4.65 trillion in fresh capital injection into the financial system. Even more exhilarating is the realisation that 27.45 percent (over a quarter) of this fresh capital came from beyond our shores. This is nothing but a practical endorsement of the CBN’s recent in- house cleaning and reforms as well as a demonstration of the rekindled faith of the international community in the Nigerian economy. Even the over 3 trillion naira raised locally shows that Nigerians believe in the policy and are, in tune with the authorities, willing to have stronger banks that can respond to the needs of the nation in a more timely and robust manner and probably rev- up our industrialisation journey.
From the outcome there is no debating the fact that a well laid out plan for national economic resurgence and prosperity is in the offing.
Firstly, with this development, the march towards the trillion naira dollar economy is well underway. From this point the nation will be in a better position to finance infrastructure, exports and small and medium enterprises (SMEs).
Also the recapitalisation is a formidable hedge against system risk as well as against unfavourable fallouts from sharp fluctuations in international commodities’ prices, particularly oil prices.
According to the Governor of the Central Bank of Nigeria, Dr. Olayemi Cardoso, “Sustainable economic growth is unattainable without a resilient financial system. This recapitalisation ensures Nigerian banks can fund the scale of transactions needed to drive a $1 trillion economy.
“The recapitalisation programme has strengthened the capital base of Nigerian banks, reinforcing the resilience of the financial system and ensuring it is well-positioned to support economic growth and withstand domestic and external shocks.”
Whereas some policies provoke a disconnect between fiscal and monetary policy, this exercise reflects a healthy synergy between the CBN and the Federal Ministry of Finance and a healthy alignment of their policies.
It is hoped that the era of easier access to cheaper credit for individuals/ households, businesses and especially the manufacturing sector has arrived.
It is trite to state that the Central Bank of Nigeria is intent on building a stable, transparent, and resilient financial system that works for all and sundry.
Emphasising the necessity for the exercise, an economist who lectures at the Baze University in Abuja has this to say, “These banks need to consolidate to make them more robust to withstand shocks and to be able to fund massive infrastructural developments as well as to be more able to lend to the real sector and MSMEs.
“These are necessary on Nigeria’s way to a $1 trillion nominal GDP by the year 2030. As the financial sector would play a huge role in making it possible for the explosive growth required to attain such lofty heights. As this sector would help push liquidity and credit from where they are least needed (surplus units) to where they are most appreciated (deficit entities).Hence helping with economic expansion.”
On his part, Dr. Aliyu Ilias, an economist also, apart from celebrating the successful completion of the exercise, cautioned that even though the banks are more liquid now, the CBN may have to enshrine a policy that mandates a stated percentage of lending to critical areas such as SMEs and agricultural sectors, they may still not enjoy the new liquidity levels as most banks are not readily disposed to lending to such sectors due to the slow, uncertain returns.
It is important to emphasise here that for all the expected benefits to be realised, consistent discipline and compliance with set rules, competent and timely oversight, proactive engagement and intervention are key. This success definitely means more work for the apex Bank; more alertness and vigilance.
Kudos to the Governor, Management and Staff of the Central Bank of Nigeria. The individual banks also deserve to be celebrated for keeping faith making it happen. Here’s toasting to a better banking era that rewards investors, supports individuals/ households, businesses, pays its workers well and helps governments to deliver on their mandates.