Capital market operatives confident bank recapitalisation will provide economy with big boost

CAPITAL market operatives are confident that the ongoing recapitalisation of the Nigerian banking industry will provide the economy with a much-needed shot in the arm that should result in increased investment.

On March 28, the Central Bank of Nigeria (CBN) announced new capital base requirements for banks, which range from N200bn to N500bn, depending on the bank’s authorisation level. It have commercial banks two years to shore up their capitals, in a bid to reposition them for global competitiveness and aligning them with the demands of the African Continental Free Trade Area.

Sam Onukwue, the chairman of the Association of Securities Dealing Houses of Nigeria, said that the newly proposed capital requirements for banks will ignite the primary segment of the capital market. He added that the market had been largely dormant due to a lack of issues over the years.

Supporting the move, Mr Onukwue praised the CBN’s initiative, noting that the increasing risks faced by banks, exacerbated by macroeconomic challenges, necessitated a stronger capital base. He added that this would enable banks to absorb unforeseen losses but also prepare them to support Nigeria’s envisioned $1tn economy in the next seven to eight years.

Mr Onukwue said: “I believe that the Central Bank of Nigeria has done the right thing if our banks should compete in the global market, including the African Continental Free Trade Area. With the current inflation rate and exchange rate, it has become almost impossible for our banks to operate in line with the new global minimum capital threshold.

 “Besides, the level of risks which the banks bear today has significantly been exacerbated by the current macro-economic vagaries. I also believe the apex bank is repositioning the banks to be able to finance the envisaged $1tn economy in the next seven to eight years. In light of the foregoing, I do not doubt that the apex bank is fair enough to base the new share capital on the level of authorization of each bank."

Also, Mr Onukwue noted that the primary market’s inactivity had been due to economic slowdowns and the reluctance of companies to launch initial public offerings amid fears of under-subscription. He added:  “The primary market has been relatively inactive over the years because of the general lull in the economy.

"Potential companies that would have floated initial public offerings were reluctant for fear of under-subscription. To worsen the situation, many investors have lost money in the primary market due to the failure of companies to list their shares in the secondary market after capital raising in the primary market but with the directive on banks’ recapitalisation, activities shall bounce back in the primary market."

Commenting on the Securities and Exchange Commission’s (SEC) new rules for the primary market, Mr Onukwue lauded the efforts to curb abuses in fund-raising, stressing that those stringent regulations, including hefty fines for non-compliance, would protect investors and ensure that capital raising in the primary market is conducted transparently and efficiently. Under the new regime, the SEC plans to release a framework that will guide the capital market in the proposed recapitalisation exercise by banks.