Lagos, Sept. 24, 2023 – The Centre for the Promotion of Private Enterprises (CPPE), a private think tank in Lagos, has called for upward review of the minimum capital requirements for banks.
It said banks’ minimum capital requirements should be increased in view of the considerable loss of value amid depreciating domestic currency.
Dr Muda Yusuf, the Chief Executive of CPPE, gave this advice on Sunday as part of the 10-point suggestions to the new management of CBN.
The CPPE said the current N25 billion minimum capital for banks had paled into insignificant amount in view of depreciation of the naira.
“Today the same N25 billion is an equivalent of just $32.5 million. This is a clear indication of the phenomenal erosion of the capital base of the banks. Recapitalization of the banks has, therefore, become imperative.”
CPPE advised Dr Olaleye Cardoso, the new governor of the apex bank, to work assiduously toward restoring confidence in the foreign exchange market, stressing that this should be his most urgent task.
“There is a serious confidence crisis in the foreign exchange market fueling an unprecedented speculative onslaught on the naira.
“The economy is grappling with severe adverse effects of depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, huge backlog of foreign exchange obligations that needs to be cleared and debt service obligations that need to be redeemed,” he said.
Yusuf said that the current situation had called to question the orthodoxy of market forces, adding that there “is evidently an economic management quandary that the new economic team would have to manage, and urgently too.”
“In addition to the I and E window, it has become necessary to create an autonomous window in the banking system where the currency can trade freely without any encumbrances.
“This is necessary to avert the diversion of remittances to other jurisdictions or the black market. We cannot afford to live in denial at this time.
“The clearance of the backlog of forex obligations should be accorded high priority to restore the confidence of domestic and foreign investors.
Yusuf also advised the apex bank to redirect the flow of investible funds to the private sector, stressing that banking credit to the private system was abysmally small and unjustifiable.
“Banking system credit to the private sector in Nigeria, as at 2022, was a mere 20.6% of the nation’s GDP, as sub-Saharan average of 28% and global average of 145%.
“Besides, small businesses which account for an estimated 50% of the GDP, have access to just about one percent of the credit in the banking system.
“The implication is that the banking system is still largely disconnected from the investing community, especially the small businesses in the economy.”
Yusuf also advised the new management of the CBN to reduce ways and means finances of the bank.
He said that this must be kept within statutory limits to avoid the damaging impacts of high-powered money on the macroeconomic environment as experienced in the last few years.
The CPPE suggested that the naira redesign policy should be suspended indefinitely, stressing that it should not be a priority at this time.
“However, the momentum for the cashless economy should be sustained without resorting to the crude methodology of cash confiscation adopted by the previous dispensation in the CBN. The approach was very disruptive and inflicted unbearable hardships on businesses and the citizens.” (GBN)
