CBN Outlines Road Map to $1tr Economy
…Emphasizes Bank Recapitalization
By Patience Ikpeme
The Central Bank of Nigeria (CBN) has cautioned that achieving a one trillion-dollar economy for Nigeria is a significant undertaking that demands meticulous planning, clear and robust policy direction, diligent implementation, and a firm commitment from all stakeholders to energize the various sectors of the economy.
Currently, the Nigerian economy is valued at approximately $250 billion. In light of the ambitious trillion-dollar goal, the apex bank has appealed to all stakeholders, stating, “As we work towards building a One-Trillion Dollar Economy, we must consider the recapitalization of our banks to be able to fund, finance and power the economy and favourably compete globally with its peers in other climes.”
Ms. Emem Usoro, the Deputy Governor for Corporate Services at the CBN, made this call in Abuja on Monday at the 36th Edition of the CBN/FICAN workshop for Business Editors and Finance Correspondents.
Usoro called for collective effort as the country pursues this economic aspiration. “We should particularly pay significant attention to bank recapitalization to ensure that our banks are strong, resilient and stable enough to carry out financial intermediation, and the much-needed financing of development projects and programmes,” she stated.
Dr. Olubukola Akinniyi Akinwumi, the Director of the Banking Supervision Department at the CBN, presented an overview, noting that all Nigerian banks currently operate within established prudential thresholds. He added that these banks are actively pursuing recapitalization efforts, and key indicators such as capital adequacy ratio and non-performing loan ratios remain within specified limits.
Regarding potential mergers and acquisitions within the banking sector as a recapitalization strategy, Dr. Akinwumi commented, “Of course, we would expect that as we make progress. Banks may indicate that, but naturally, you know that every bank from the very work group would make its own efforts to see, to raise the capital required, and as time goes on, they are also engaging and looking at one another to see where those opportunities arise. When such opportunities arise, they will definitely take it.”
Addressing the role of the banking sector in powering critical sectors like agriculture, manufacturing, and infrastructure, vital for achieving a trillion-dollar economy, Dr. Akinwumi stated, “And of course, that fact is not lost on the banks. We continue to engage the banks to lend to critical sectors of the economy. And as I said in my presentation, we have seen that those sectors are also being prioritized by the government.” He pointed to the government’s budgetary focus on health, education, infrastructure, and agriculture as a signal to banks of viable business opportunities.
Dr. Akinwumi indicated that considerable progress has been made with internationally active banks in meeting the stipulated 500 billion Naira capital base. He also addressed the adequacy of the minimum recapitalization in the face of emerging economic shocks, stating that the CBN management foresaw the evolving scenario and acted proactively.
“We only started early. If we had waited till now, perhaps we would have had more challenge to face. But the fact that the managers of the Bank, in good time, had the foresight and immediately swung into action by stipulating this requirement, has already positioned the banks and they are making very good progress, even as of now.”
He added that “We are halfway to the journey by the duration, and I can tell you we are nothing less than halfway the journey by the capital that has been raised already. So we are very sure that looking into the future, the capital requirement that we have stipulated will be able,” he said, noting that shareholders’ funds also provide a buffer. He expressed confidence that the reforms of the past year have enhanced the attractiveness of the Nigerian banking system to foreign investors.
Regarding the Loan to Deposit Ratio (LDR), the CBN Director stated its ongoing engagement with banks to encourage lending to critical sectors, emphasizing that the current 50% LDR does not indicate a lack of desire for banks to support the economy but is a contextual measure considering prevailing inflation levels. The CBN also affirmed improved transparency in the computation of the Cash Reserve Ratio (CRR).
On Small and Medium Enterprises (SME) funding, the CBN stated that banks make provisions, and the apex bank actively monitors the utilization of these funds to ensure they are directed towards stipulated sectors.
Finally, the CBN official clarified that the incentive for recapitalization lies within the inherent benefits of a stronger capital base, enabling banks to undertake larger transactions and capitalize on emerging opportunities like infrastructure concessioning. The CBN also assured that rigorous verification processes are in place to prevent the use of illicit or borrowed funds for recapitalization.
