Address other issues to minimise disruptions in banking system – CPPE tells CBN

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 Lagos, April 1, 2024 – The Centre for the Promotion of Private Enterprise (CPPE), a think-tank in Lagos, has advised the Central Bank of Nigeria (CBN) to address other fundamental issues in the banking system to minimise disruptions in the system.

It suggested that these other issues should be addressed immediately to ensure a smooth transition to the new capitalization regime for banks.

The Centre gave the advice in a statement signed by its Director, Muda Yussuf, in Lagos on Monday.

The Centre commended the apex bank for its recapitalization moves in the banking sector, which it said, it was well timed, but said such other issues were also important.

“We commend the CBN for giving a timeline of 24 months for banks to comply.  This would minimize disruptions and dislocations in the financial system.  It would also ensure a smooth transition to the new capitalization regime for banks.

“With the current approach and timeline given by the CBN, the risk of banks collapse or hasty mergers and acquisitions should be minimized.

“It is also laudable that the current categorization of banks with differential capital requirements has been maintained – international, national and regional. 

“This is necessary to allow for inclusion and reduce the risk of dominance of the banking space by a few big banks.”

The Centre, however, advised that it was imperative for the CBN to find solutions to other fundamental issues in the banking sector like restoring confidence in the sector and ensuring minimum risks to shareholders and employees.

Other issues include the large spreads between deposits and lending rates, short tenures of credits and lack of access to credit by small business, among others.

The CPPE said that there was the need to assure depositors of the safety of their funds in the banking system, irrespective of the current level of capitalisations of banks.

“It is important to sustain the confidence of the banking public about the soundness and stability of the Nigerian banking system, especially because of the perception and vulnerable risks of smaller banks.  

“We implore the CBN to ensure minimum risk to shareholders and employees in the banking system, across board.  It is also imperative to guide against elevated concentration risks and the deepening of oligopolistic structure in the banking system. 

“There are also concerns around the large interest rate spreads in the Nigeria banking system.  Spread between deposits and lending rates are sometimes as high as 20%, which is one of the highest globally. 

“The tenure of funds in the banking system is extremely short. Over 80% of funds are of one year tenure or less, which explains the high level of assets and liability tenure mismatch in the banking system.

“Access to credit by small businesses remains a major inhibition to economic growth and economic inclusion.  Small businesses account for over 50% of GDP, but get less than 5% of credit in the banking system. 

“Financing gap in the Nigeria SME space is about $32.2 billion [over N40 trillion], according to IFC estimates. 

“De-risking the credit space for small businesses should be accorded high priority in the new dispensation. This is essential to boost growth, create jobs and deepen economic inclusion.

“The apex bank should caution all players in the banking sector against predatory and other anti-competitive practices in the industry on account of the recapitalization policy,” the centre advised.   (GBN)

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