Inside Details Why 17 out of 24 Banks May Not Meet CBN’s Likely Capital Base — Ernest and Young

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By Ken Afor 

A renowned financial institution, Ernest and Young (EY), has projected that about 17 out of 24 commercial banks in Nigeria may not meet a projected increase in the Capital base of Commercial banks by the Central Bank of Nigeria (CBN.)

This follows rumors in Nigeria’s financial sector that the CBN is planning to raise the capital base of commercial banks in the country from its current N25 billion since 2005.

According to the firm, the country might witness another era of Mergers and Acquisitions (M&A) should the proposed increase of the capital base be brought forward for consideration and approval.

It would be recalled that during the last recapitalization of banks in 2005, the largely populated banking sector, which had 89 licensed banks, saw a drastic reduction in numbers to 25.

While the proposed increase of the capital base is still pending, EY, in its projection, indicated that the current hike in the exchange rate regime will be one of the determining factors for some of the banks to meet up with the new minimum capital.

It would be recalled that during the last recapitalization in 2005, the exchange rate stood at N132.9 per dollar, but the naira currently exchanges for over N1400 for a dollar.

Also, due to the devaluation of the naira, the N25 billion capital base in 2005, which amounted to $188.2 million, has dropped drastically to $18.4 million in value using the recent exchange rate, which will be another factor to consider and use as a parameter for reaching a decision.

The firm stated: “While the CBN governor gave no indication as to the magnitude of the proposed hike in the capital base, we have assumed what the proposed increment will be based on three different scenarios underpinned on current macroeconomic conditions. On the back of that, we were able to determine the number of banks (across the three licence types) that may fall below the new minimum capital thresholds.

“In a worst-case scenario, i.e., given a capital multiplier of 15, about 17 out of 24 banks would not meet the new minimum capital.”

In order not to create unnecessary panic among depositors and the general public, the apex bank has assured that the country’s banking sector is still safe and stable.

Furthermore, the apex bank maintained that it remains committed to performing its function in maintaining a stable financial system in Nigeria.

“The Central Bank of Nigeria has noticed reports, in certain media outlets, about a recommendation for the Federal Government to take over some CBN-supervised financial institutions,” said the apex bank’s acting Director, Corporate Communications, Hakama Sidi-Ali, in a statement issued this week.

The statement added: “To avoid any doubt, Nigerian banks are still safe and sound. The CBN advises the public to go about their daily lives without getting disturbed by reports regarding the health of Nigerian banks that have not come from the CBN.

“The CBN is fully equipped to carry out its statutory duty of ensuring the stability of Nigeria’s financial system.

“We assure the general public and depositors that their funds are safe in Nigerian financial institutions.

“Bank customers are therefore advised to proceed with their banking transactions as usual, as there is no cause for concern.”

This is coming against the background of allegations against the former governor of the CBN, Mr Godwin Emefiele, that he reportedly used proxies to acquire Union Bank of Nigeria for Titan Trust Bank Limited and Keystone Bank without evidence of payment, according to a private investigator, Mr. Jim Obazee.

It would be recalled that Mr. Obazee, in his recommendations, had advised the federal government of Nigeria to reverse the sale of the banks undertaken during Emefiele’s time and take over the banks.

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