Home Business Depreciation Of Naira Weakens Capital Base Of Banks – Emefiele

Depreciation Of Naira Weakens Capital Base Of Banks – Emefiele

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Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) has revealed his new economic agenda for the next five years. On Monday, June 24, Emeifele said his vision for the CBN, is primarily driven by the need to support continued growth and development of the Nigerian economy.

“Consequently, the CBN will be working closely with our fiscal authorities to target a double digit growth by the next five years. 

“The CBN is committing to work assiduously to bringing down inflation to single digit; while accelerating the rate of employment.

“Put succinctly, our priorities at the CBN over the next 5 years are the following; First, preserve domestic macroeconomic and financial stability; Second, foster the development of a robust payments system infrastructure that will increase access to finance for all Nigerians thereby raising the financial inclusion rate in the country; Third, continue to work with the Deposit Money Banks to improve access to credit for not only small holder farmers and MSMEs but also Consumer credit and mortgage facilities for bank customers. 

“Our intervention support shall also be extended to our youth population who possess entrepreneurship skills in the creative industry,” Emefiele said.

According to him, “This group deserve our encouragement.  We shall also during this intervening period encourage our Deposit Money Banks to direct more focus in supporting the Education Sector. 

“Fourth, grow our external reserves; and fifth, support efforts at diversifying the economy through our intervention programs in the agriculture and manufacturing sectors.

“We are confident that when implemented, these measures will help to insulate our economy from potential shocks in the global economy.

“In my second term in office, part of my pledge, is to work to the best of my abilities in fulfilling these objectives.”

Emefiele recalled that in his maiden address on June 5, 2014, he that his vision would be to ensure that the Central Bank of Nigeria is more people focused, as its policies and programs would be geared towards supporting job creation, reducing the high level of Treasury-Bill rates, improving access to credit for MSMEs, deepening our intervention programme in the agricultural sector, building a robust payment system infrastructure that will help drive inclusion, in addition to key macroeconomic concerns such as exchange rate stability, financial system stability and maintaining a strong external reserve.

“As is the case with most plans, although most of the goals we set were achieved, I would be the first to admit that everything did not happen as contemplated. The normalisation of monetary policy in the United States and the over 60 percent drop in crude oil prices between 2014 and 2016, had significant adverse consequences on our economy and made us adjust our methods to ensure that we still implemented most parts of our vision.

“Given Nigeria’s dependence on crude oil revenues for close to 86 percent of our foreign exchange earnings and over 60 percent of government expenditure,” he said.

He said that the drop in the value of the naira to the dollar had weakened the capital of banks.

For instance, in 2004 when the banks were last asked to recapitalise, the value of a dollar to the naira was about N100. This means that the N25billion capital base of banks when translated into the dollar was about $250 million.

However, due to the drop in the value of the nation’s currency which now exchanges for N360 to a dollar, the governor put the translated value of N25 billion at just to about $75 million.

This implies that the value of the capital of each bank had been reduced by $175 million.

Based on the number of money deposit banks in the country which stands at 20, the total value of the capital base may have been eroded by about $3.5 billion.

According to him, going by the huge developmental role the apex bank would want the banks to play in the next five years, it had become imperative to demand their recapitalisation.

Emefiele said the committee of governors of the CBN would meet to discuss the new policy. The meeting is expected to discuss modalities for the recapitalisation exercise as well as approve the framework that would guide the implementation of the policy.

“In the next five years, we intend to pursue a programme of recapitalising the banking industry so as to position Nigerian banks among the top 500 in the world. Banks will, therefore, be required to maintain a higher level of capital, as well as liquid assets in order to reduce the impact of an economic crisis on the financial system.

“Recall that it was Governor Chukwuma Soludo in 2004 that did the last recapitalisation we had. He moved the capitalisation from N2 billion to N25billion. And I must commend those efforts because it resulted in positioning Nigerian banks not only in Africa but among the top banks in the world in terms of capitalisation.

“It also helps to increase the banking industry’s capacity to take on large transactions. And those are some of the things we badly need today. So if you relate N25 billion with 2004 exchange rate, which was about N100 (to a dollar), N25 billion was about $250 million. Today, if you relate N25billion at N360 (to a dollar) you will see that it is substantially lower than $75million.

 “So what we are trying to say is that the recapitalisation has weakened and there is a need for us to say it is time to recapitalise the banks again. It’s a policy thrust which would be discussed at the committee of governors’ meeting and of course, the framework for the recapitalisation of Nigerian banks would be unfolded for the whole world in due course.”

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