Recapitalization: Naira Depreciation Has Greatly Eroded Capital Base Of Banks —Izunaso

Agency Report

Chairman of the Senate on Capital Market, Senator Osita Izunnaso, says the new recapitalization initiative for banks by the Central Bank of Nigeria (CBN) is critical given the depreciation of the naira which has significantly affected the capital base of banks in recent years.

The CBN last week unveiled new minimum capital requirements for banks, pegging the minimum capital base for commercial banks with international authorisation at N500bn.

The new minimum capital base for commercial banks with national authorisation was pegged at N200bn, while the new requirement for those with regional authorization pegged at N50bn.

“The new minimum capital requirements for banks operating in Nigeria, with the objective of ensuring a more safe, sound and stable banking system is a welcome development that will help strengthen the country’s financial system in general.

“This new Capital requirement is justified by the negative impact of naira depreciation on the capital base of banks over the years especially following the recent unification of exchange rates,” he said.

Sen Izunaso noted that the expectation is that banks, many of which are listed on the Nigerian Exchange, will utilize the stock market to raise the necessary funds through offers for subscription or rights issues.

Izunaso stressed the importance of injecting fresh capital to meet these requirements, rather than relying solely on revenue reserves. This strategy is poised to deepen the capital market, escalate equities market capitalization, and possibly act as a beacon for Foreign Direct Investment (FDI), with beneficial effects on the economy at large.

However, Izunaso also highlighted potential risks, particularly the danger of banks using laundered money for recapitalisation through private placements. He urged the CBN to enhance its oversight to ensure that only fit and proper individuals become significant shareholders, noting that transactions through the stock market inherently provide an extra layer of scrutiny.