The Chairman, Board of Bank Directors Association of Nigeria (BDAN), Mustafa Chike-Obi, has appealed to the Central Bank of Nigeria (CBN) to benchmark the recapitalisation requirement of banks on the basis of their different degrees of international operations.
He said banks with a minimal international exposure should not be required to raise the same amount as banks doing vast international business.
“If you’re doing 10 percent of your business internationally then you need 10 percent increase in capital, if you’re doing 50 percent then 50 percent increase in your capital,” he said.
He said this during an interview on Channels TV on ‘Impact of CBN monetary policy on Nigeria’s economy’, on Wednesday.
The CBN, last month, announced a ten-fold jump in minimum capital requirements for banks, two decades since the last exercise.
The minimum capital requirement was jacked up to N500 billion for those with international authorization; N200 billion for commercial banks with national authorization; and N50 billion for those with regional authorisation.
Eight banks with international operations are expected to raise their capital requirements of N500 billion, which includes all tier one banks namely Fidelity Bank, FCMB and Union Bank. They all currently require over N200 billion to meet this requirement.
Chike-Obi said that it is the directors’ responsibility to raise capital but they were not consulted. He argued that asking banks to raise N4trrillion in the next two years was a difficult task.
“Given where the risk-free rate is, around 30 percent, you require about 35-40 percent return on capital to invest in banks. That’s a little more risky than treasury bills,” he said.
“So, they have shrunk the banking space both in terms of people that can afford those interest rates and the amount of money that and the amount of money that’s available for the deposit,” he added.
The chairman said that the banking business would shrink in the next couple of years, “and in that shrinking business you want people to bring N4trillion worth of capital. It’s a bit of a contradiction.”