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20 yrs after: Why CBN insists on another recapitalisation – Vanguard Newspaper

By Cynthia Alo & Juliet Umeh 

The Central Bank of Nigeria, yesterday insisted on further recapitalisation of Nigerian banks saying that the decision is for the common good of Nigeria.

The CBN governor, Dr Olayemi Cardoso, who spoke at the launch of the book, The ‘Power of One Man,’ How the Soludo-engineered consolidation transformed Nigerian banks to global players, a book written by Prof. Ray Echebiri which detailed all about the consolidation carried out by Prof Soludo 20 years ago.

Cardoso, who was represented at the event by Mr. Philip Ikeazor, Deputy Governor, Financial System Stability Directorate, said: “Incidentally, the current manifesto of the Central Bank has embarked on another round of banking consolidation.

Why was it necessary then? Professor Soludo wanted to make the banks robust, resilient, and fit for purpose to grow the economy. And that is exactly the same reason why we are embarking on a similar journey today.

“Again, I think by coincidence, if you check the quantum of the capital, minimum capital levels that we require, it’s pretty similar, because international banks are moving from 50 to 500, which is 10 times, similar to Soludo’s 12 and a half times, and national banks are moving from 25 to 200 billion, roughly about 8 times. Why would you think this is the quantum leap? “Basically, when you do consolidations, you would look at the macroeconomic headwinds, the macroeconomic conditions on ground, and of course, apply your stress tests.

“And when you apply stress tests today, which I’m sure some of the big banks have done, they would have taken a guess where the capital levels were going to land.

“If you compare the bank assets in Nigeria to GDP, and compare it to similar economies in Africa, you can see they were way behind. So this exercise is also to strengthen the financial system, make it robust to be able to meet the expected headwinds.

“Remember that when the current administration came into place, there was unification of FX rates, and there was removal of fuel subsidies. And the impact on the economy, the manufacturing sector, is beginning to manifest, or has started manifesting in 2024, and will continue over the next few years.

“So it was important that the banks were recapitalized to the level where they’ll be able to absorb any shocks that come, and also position the banks to be able to grow the economy.

“So Professor Soludo had laid the foundation 20 years ago of taking the bold decisions required to drive the economy. One of the questions raised and comments passed on interest rates, economic growth and everybody’s debating what it should be. But I’d like to remind people that once you do not tame and control inflation, and you get into hyperinflation, I think it takes you several years to get out of it.

“There’s a South American country that still has very significant oil reserves, but they are in hyperinflation. And I think everybody is aware of what’s happening in those economies. We have our brothers in East Africa who are in the world and are in hyperinflation. We know how hard they’re struggling to come out of that.

“So for us at the Central Bank, focusing on our core mandate of price stability, maintaining a stable exchange rate, and of course economic growth, but it’s a question of sequencing, because it’s very important that we do not enter hyperinflation, because once you enter hyperinflation, the transmission of monetary policy tools becomes completely ineffective.

So it is important that we avoid that. And they’ve been asked the question, how long would you maintain high interest rates? That would be for as long as we are able to control and start to reverse galloping inflation.

“I think we’re all aware that in the Western world, they did have rate hikes to be able to control theirs, and they maintained it for a very long time. It’s only now that they stopped rate hikes, but they have not even started dropping the rates as we speak.

So it’s important that we tighten and hold on a little while, and we expect that in no distant future, we will be able to start slowing down on the rate hikes,” Cardoso said.

This is even as eminent Nigerians including former President of Nigeria, Chief Olusegun Obasanjo; former Central Bank of Nigeria, Prof. Chukwuma Soludo, Governor Babajide Sanwo-Olu, among others, described bank recapitalisation carried out 20 years ago from $20 billion to $250 billion as a disruptive change that changed Nigerian banking and financial system forever.

In his remarks, Obasanjo who was represented by the former Cross River State governor, Donald Duke, believes that working with the right team is paramount in every economy.

Describing the title of the book Power of One Man, OBJ said: “I believe that I am that one man because I put together the team. It’s like a coach, a football manager, you pick the captain, and the captain was Captain Soludo.

“But, without the team, they are not going to win a match. So, Captain Soludo has saluted his team,but I take pride in having put together the team.”

Earlier in his speech, Sanwo-Olu, said that this came at a time when to reflect as economists, bankers, opinion leaders, businessmen and politicians and whatever spheres you find yourselves, and look at how Soludo’s team survived those challenges.

We’re also at a point where the current CBN and the leadership are also going through a similar exercise, banking consolidation, increment in share capital and the rest of it.

“We’re just hoping that, the blood that Prof Soludo did not anticipate will happen that time, that it did happen, that Olayemi Cardoso and the likes of Phillips will not let it happen.

“But, we should not walk away from the tough thing. If it’s going to happen, it has to happen. You can imagine 25 billion then, we’re talking about 500 billion, 400 billion now,” Sanwo-Olu advised.

While appreciating the author of the book and all the dignitaries at the event, Soludo recounted the harrowing experiences he had to go through while carrying out the policy.

“My family went on exile because of threats to my children. They nearly beat my father to death,” Soludo said.

Meanwhile, the author of the book, Dr Echebiri, while speaking on his book said:

“If we have the right persons in the right positions, by way of leadership recruitment in Nigeria, we can claim prosperity as our birthright without wars,” he said.

See Dollar to Naira black market today, Pound to Naira, Euro to Naira, Dollar to Naira CBN rate and Dollar to Naira Bank rate today.

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