The CBN, NDIC and North in the recapitalisation of banks

By SALISU NA’INNA DAMBATTA

The ongoing CBN-inspired recapitalisation for banks has serious implications for the banking sector, the equity capital market, the Nigeria Deposit Insurance Corporation of Nigeria (NDIC) and Northerners.

The recapitaliaation will make the banking sector stronger and enhance its ability to finance productive economic activities which can grow the economy; the capital market may be overwhelmed by equity stocks as Initial Public Offer (IPO) and Right Issues from banks flood the market. The banks must complete the process of bolstering their minimum capital by 31st March, 2016.

The banks may go for Mergers and Acquisitions or the unpleasant self-downgrading. A few of the banks may upgrade their licenses. The CBN said in its curcular of March 28, 2024 that, promoters of new banks whose applications for licenses were pending or have been given preliminary approvals must also meet the new minimum capital requirement.

The new minimum capital requirements for the six categories of banking licenses are ₦500 billion for banks that would operate nationwide and overseas; ₦200 billion for national licence; regional banks must have ₦50 billion capital to operate. Any Merchant Bank is required to have ₦50 billion as its capital. Non-interest national and regional banks are required to have minimum capital of ₦20 billion and ₦10 billion respectively.

The CBN sees the new minimum capital as vital to enable the banks play a stronger supportive role in growing the economy to a USD$1 trillion size. They are also expected to buoy the economy against what the CBN called the “prevailing macroeconomic challenges and headwinds occasioned by external and domestic shocks.”

Justfying recapitalisation for banks, the Bank of Canada says on its website, “Higher bank capital requirements reduce the severity of financial downturns. The higher the buffer created by capital, the higher the bank’s probability of surviving a downturn. Surviving banks are then well placed to continue providing credit during the recovery phase.”

The recapitalisation of the banks offers an opportunity for Nigerians of the 19 Northern states to buy shares in the banks, become part owners and join the boards of the institutions. This will give them influential voices in the banks and the chance to push for favourable consideration in granting credit facilities for viable busines proposed by Nigerians of the north.

If Nigerians of the north invest in the banks thereby becoming stake holders, their perennial complaints that banks in the country frequently reject their applications for credit facilities could be reduced, or even eliminated.

Pan-northern organisations like the Northern Elders Forum (NEF), the Arewa Consultative Forum (ACF), the Coalition of Northern Groups (CNG), Northern States Christians Elders Forum, the Northern Governors Forum (NGF), Northern Senators Forum (NSF) and others should mount a sensitisation campaign to mobilise and encourage nigerians of the North to buy equity stocks in the banks for the numerous advantages that entails.

Now it is appropriate to highlight the roles of the Nigeria Deposit Insurance Corporation (NDIC) as banks navigate the downturn while trying to up their minimum capital.

The NDIC establishment Act empowered it to administer the Deposit Insurance Scheme (DIS) in Nigeria which was established by government to shield depositors against the loss of their insured deposits in member institutions should a member institution fail to meet its obligations to depositors.

The law empowered the NDIC to supervise banks so as to protect depositors; foster monetary stability; promote an effective and efficient payment system; and promote competition and innovation in the banking system. The banking supervision role of the NDIC reduces the potential risk of failure.

However, if an insured bank fails, creditors and shareholders could be paid liquidation dividends after depositors had been fully reimbursed. This implies that becoming a shareholder in a bank comes with some protection from the NDIC. So northerners should buy bank shares.

*Salisu Na’inna wrote from Dambatta.