LAGOS — The Central Bank of Nigeria (CBN) emphasized over the weekend the necessity of further capitalisation of banks, stressing it as a move for the nation’s common good.
CBN Governor, Dr. Olayemi Cardoso, articulated this position at the launch of “Power of One Man,” authored by Dr. Ray Echebiri. Represented by Mr. Philip Ikeazor, Deputy Governor of the Financial System Stability Directorate, Cardoso highlighted the parallels with past banking consolidations.
The Case for Consolidation
Cardoso explained the rationale behind this initiative: “Professor Soludo previously aimed to make banks robust, resilient, and capable of fostering economic growth. Today, we pursue a similar goal. The required capital levels for international and national banks are increasing significantly, echoing Soludo’s previous enhancements.”
He noted the capital increments from N50 billion to N500 billion for international banks and from N25 billion to N200 billion for national banks. These adjustments aim to fortify the financial system against macroeconomic headwinds and ensure banks can withstand future economic shocks.
Economic Context and Impact
Cardoso pointed out the recent economic shifts, including the unification of FX rates and the removal of fuel subsidies, which have begun to affect the manufacturing sector. He stressed the importance of banks being sufficiently capitalized to navigate these changes and support economic growth.
“Professor Soludo’s decisions 20 years ago laid a strong foundation. Addressing inflation is crucial to avoid hyperinflation, which can render monetary policy tools ineffective,” he added.
High Interest Rates
Responding to queries about high interest rates, Cardoso remarked that maintaining them is essential for controlling inflation. He cited examples from the Western world, where prolonged rate hikes were necessary to manage inflation, suggesting a similar approach for Nigeria.
Banking System Transformation
Prominent figures such as former President Olusegun Obasanjo and former CBN Governor Prof. Chukwuma Soludo commended the recapitalisation efforts that transformed Nigeria’s banking and financial system two decades ago. Represented by former Cross River State Governor Donald Duke, Obasanjo emphasized the importance of assembling the right team to achieve economic milestones.
Lagos State Governor Babajide Sanwo-Olu noted that the book launch offered a timely reflection for economists, bankers, and policymakers on the resilience of Soludo’s team during past challenges. He highlighted the ongoing banking consolidation and the increase in share capital as a continuation of these efforts.
