Successful economies are built on the foundation of strong banks

Zawya

01-07-2025

What are your views on the ongoing recapi- talisation of banks as directed by the Central Bank of Nigeria (CBN), and how will it impact the government's vision for a $1trn economy?
The ongoing bank recapitalisation policy is both timely and essential in positioning the financial system to meet the demands of a growing and globally competitive economy.
The initiative is expected to boost the resilience of the banking sector by strengthening its capacity to withstand economic shocks such as inflation, cur- rency volatility, and global geopolitical disruptions.
The policy will also place Nigerian banks on a stronger footing to finance the country's long-term economic transfor- mation, including funding of large-scale infrastructure and industrial projects.
The recapitalisation policy goes beyond regulatory compliance. It is a forward- looking strategy aimed at equipping Ni- gerian banks to operate at the scale and sophistication required by a trillion-dollar economy. The move will enhance the sec- tor's ability to support both traditional economic drivers such as oil and gas, agriculture, and manufacturing, as well as emerging sectors like fintech, green energy, and infrastructure development. The truth is that Nigerian banks need adequate capital buffers to meet the evolv- ing demands of these sectors. Without this, the industry cannot effectively rise to the challenge.
There is a sharp contrast between Nigerian banks and their counterparts in more advanced economies, where bank assets typically range between 70 to 150% of GDP. In Nigeria, bank assets accounted for just 11.97% of GDP as of 2024, a gap that must be addressed if our financial system is to align with international standards.
Overall, the recapitalisation of banks is a recognition of the urgent need for stronger financial institutions capable of delivering on national priorities such as infrastructure expansion, digital trans- formation, inclusive financial services, and economic diversification – it is something to cheer.
I believe that a robust, well-capitalised banking sector is critical for Nigeria's as- piration to be a $1trn dollar economy, and the recapitalisation drive is a step in the right direction to achieve that goal.
Why do you think recapitalisation has been the top priority of the CBN governor, Olayemi Cardoso since he assumed office in 2023? The bank recapitalisation journey started at the Chartered Institute of Bankers of Nigeria's (CIBN's) November 2023 dinner held in Lagos. The brand new central bank governor, Olayemi Cardoso, spoke for the first time. He said another round of bank recapitalisations was on its way, and all the guests at that dinner became quiet and reflective. The circular by the central bank for the bank recapitalisation followed on 28 March 2024. The banks were given 24 months, commencing 1 April 2024 and ending 31 March 2026.
My point is that it was a very good move by the central bank. That was the first time we saw the central bank trying to align the monetary policies with the fiscal policies and the vision of the government, which for me, is very good.
Cardoso had mentioned that the cen- tral bank had undertaken a review of the banks and found that they were solid. So, the capital-raising exercise is not about banks having issues. It is about align- ing the banking sector to play its role in the economy as it was envisioned by the government.
What in your opinion, are the critical issues in the recapitalisation exercise?
The recapitalisation exercise is now over one year old. The banks are expected to raise about $3.3bn. I think that all the banks have submitted their plans for re- capitalisation, and a lot of them are mak- ing other progress on the exercise, but the central bank is in a better position to say so, at the right time.
We need to ensure that all banks suc- ceed and raise the capital in the next one year. And if they don't, I believe the central bank will be flexible enough to allow some room to make sure the banks secure the required capital.
As you know, the CBN increased the new minimum capital for commercial banks with international affiliations, other- wise known as mega banks, to N500bn ($312m); commercial banks with national authorisation, N200bn ($125.5m); and com- mercial banks with a regional licence, N50bn ($31.2m).
Other requirements are for merchant banks (N50bn [$31.2m]); non-interest banks with a national licence (N20bn [$12.5m]); and non-interest banks with a regional licence will now have N10bn ($6.3m) minimum capital. The 24-month timeline for compliance ends on 31 March 2026.
It is not really a matter of competition because the economy needs all the banks to thrive – whether they are small or big. There are certain aspects of the economy, as required by the CBN, that UBA and some Tier-1 banks can do, and there are also some transactions that will require the pa- tronage of smaller banks. At the end of the day, these are the values that the banking industry is adding to the economy.
What steps are banks taking to promote stronger governance in the utilisation of funds raised from domestic and foreign investors?
I agree that after raising money, there should be stronger governance for utilisa- tion of the funds.
If you recall, after the bank recapitali- sation exercise in 2004-2005, some issues were raised and we started having banks with problems.
I think the central bank should learn from that so that as this recapitalisation is happening, a proper governance structure is put in place to ensure the raised funds are well utilised.
Do you think that Nigerian banks are strong enough to manage the foreign reserves of the country?
Nigerian banks are strong enough to man- age the national reserves. In other coun- tries where Nigerian banks operate, they are managing their reserves.
Take UBA for example, which is present in 19 other countries in Africa. In some of those countries where we are present, we have the accounts of their own cen- tral banks. They have confidence in us to manage them – and we are saying that Nigerians should believe in themselves and their capacity to manage their affairs.
It is a residue of the colonial mentality, where we find it difficult to believe that we can do the things that we actually have the capacity to do. Times have changed, we now go to the same schools as the children of our former colonial masters – and some Nigerians even beat them in the classes!
I think we can start with local banks managing 10% to 20% of national reserves so that we can use Nigerian banks to develop Nigeria. That is better than for us to take our reserves to foreigners, and for Nigeria to then turn around and borrow the same funds! That is the men- tality change needed.
Are you concerned over the current exchange- rate volatility, at a time when banks are rais- ing additional capital?
The depreciation of the naira is a major challenge for the banks in raising new capital. The investors have some concerns over the exchange rate volatility and how it will affect the funds they are bringing into the banks at their time of exit.
The central bank really needs to build a lot of confidence in that area by boosting liquidity in the forex market. However, we have seen the restoration of investors' confidence in the economy and that will continue to help address such fears.
We have also done enough to ensure that there is more digital value for bank customers, and convenience in accessing banking services. Yet, there have been some cybersecurity gaps and frauds and that tends to reduce the confidence that people have in the banking industry.
Currently, the Nigeria banking industry loses about $32m annually to fraud and cybersecurity risks. So, we need a lot of collaboration to ensure that such occur- rences do not persist. Collaboration with central banks and security agencies will significantly help to address these chal- lenges.
The banks also need to build sound platforms that can protect their operations against cybersecurity risks. Banks should be a safe place for everyone.
We have had some meetings with na- tional security agencies, and there are contributions that we are making in terms of curbing cybersecurity fraud.
How would you assess the opportunities available to Nigerian banks to grow and ex- pand their operations?
There are lots of opportunities available to grow bank assets in Nigeria, to fund development and fund critical sectors. But for us to do that without problems, we need to be stronger. Unfortunately, even mortgages are really quite low in Nigeria compared to other countries. Banks have to be financially strong enough to go into other areas like infrastructure funding.
Infrastructure funding has to be done by Nigerian banks. We must take the lead, even if we get support from outside that's fine. But the local banks must be in a posi- tion to fund infrastructure in Nigeria be- cause the infrastructure gap in the country remains high.
What do you think should be a priority issue to support the Nigerian banking industry?
I think that incentives for long-term lend- ing are very critical for this economy. And I believe that the central bank, working with fiscal policies, can work out incen- tives for banks to lend over the long-term. One such incentive is tax breaks.
In some of the countries where we are present, there are certain regulations that enable long-term lending. For instance, if you are lending for infrastructure, there are considerations on capital adequacy ratios in some other countries. If financing a rail project in Tanzania or Uganda, the Cash Reserve Ratio (CRR) is about 30%.
The issue of CRR is crucial because of the 50% CRR here. That means that 50% of our deposit is at zero interest rate for us. For instance, if a bank takes a N100,000 deposit from a customer, it means that half will be at zero interest rate, earning nothing for the bank.
What the bank can earn is only on the remaining 50%. The fact is that even if banks are allowed to use the quarantined 50% for treasury bills purchase, they could be earning at least 20% returns on their investment.
I don't know of other countries where the CRR is at the level it is in Nigeria. But we can provide incentives for long-term funding through the CRR. The CBN can re- lease 20% of the CRR for banks to lend for infrastructure or any other critical sector.
What do you think about Nigerian banks' profitability vis-à-vis their counterparts in other African countries?
You need a profitable banking industry to have a strong economy. Compare Nigerian banks' profit to what happens in South Africa – one South African bank, Standard Bank's profit, is a combination of all we have in the industry.
Just take a look at the list of the top banks in Africa, go and look for Nigerian banks and find where they are. We still need strong and profitable banks that will play the role that we need them to play in this economy.
However, our CRR debits support for the economy and the investments our banks have made in digitising the payment sys- tem are something that banks should be applauded for.
The banking sector is one of the high- est employers of labour in this country. It is also contributing to the political space – many of the former bank CEOs are now governors and they are doing well in their states. So, the banking industry is making great contributions to the economy and we need to work together to ensure that more is achieved.
For the Nigerian banking industry, it is a matter of collaboration with the regulators, various stakeholders so that we can deliver the $1trn GDP for Nigeria.
It is a vision but vision without capital is hallucination, and capital without vision is stagnation - put together, they build nations.
In which areas do you think that Nigerian banks and the economy need support to thrive?
After the recapitalisation funds are se- cured, we also need capacity building to manage them. We need to build capac- ity, especially in risk management and compliance.
That is where the banking industry re- quires a lot of support, especially a risk management framework that will deliver lots of these facilities we are all talking about.
Let's look at some countries that have done their bank recapitalisation well – like India, China, Indonesia and so on. Why are they getting it right, and what can we learn from them? If you take India for instance, the country has done very well in services and manufacturing. The last five years has been tremendous for India. It has 1.3bn people but the growth rate is still around 6%. Indonesia is doing well in agriculture. They are also into manufacturing.
The Nigerian economy is still basically a primary economy. We are still exporting raw materials. If we are going to get to a $1trn economy, we need to move from a primary to secondary, and then tertiary economy. We need to add value to our raw materials, and then create jobs for the people.
Our challenge has always been diversi- fication and job creation, and that is what these other countries have done and it is working out for them.
How would you assess the central bank's abil- ity to institute a compliance culture among the banks in Nigeria?
The CBN has also done well in terms of ensuring banks' compliance with industry regulations. UBA is active in other coun-tries of the world, like the US, where the regulations are stiffest, [so] we are also learning from our presence there and us- ing it to improve domestic operations and our operations in other African countries.
The whole world is working together and if the US regulator hears that there is a problem in the remote part of Liberia, they will pick up that information, and we will have to answer for that.
I also think that Nigerian banks are do- ing very well in Africa. Some of the inter- national banks that were here 50 years ago are now leaving. Barclays Bank is leaving, BNP Paribas is also leaving - and Nigerian banks and other African banks are taking those positions. That will give you an idea that we have strong banks in this country that can manage some of these issues we are talking about.
Collaboration is important. Collabo- rating with foreign institutions, and col- laborating with ourselves is important. One thing I would want to say here is that Nigerian banks today are collaborating more with each other than before.
What do you think is lacking in the Nigerian banking industry?
I believe that the banking industry in Ni- geria does not have a voice. If you want to get the voice on the banking industry, who do you go to in Nigeria? If you go to the individual banks, that's not how things should be.
It is not the central bank, it is not the Chartered Institute of Bankers of Nigeria (CIBN). If you go to Ghana, you will see the Ghana Bankers' Association. If you go to Uganda or Kenya, you will see a Bankers' Association. They will have a secretariat, and CEO you can talk to, who is in charge, and can do research on the banking sec- tor. They can have a representation at the National Assembly to argue about bills on the economy. We don't have that in Nigeria.
The Body of Banks' CEOs, which I head, is a CIBN committee. This is a start.
What are the other issues you think Nigerian policy-makers should urgently deal with for the good of the country?
We need to deal with the ease of doing business challenge in Nigeria. That is the easiest way for foreign investors to come in and partner with Nigerians in order to set up businesses that can transform the economy.
If you want foreign investors to come in, there must be domestic investors to give them confidence. Domestic inves- tors cannot take 100%, they also want foreign investors to come in. In doing that, they build capacity and partner- ships, which are important.
Financial accessibility is also im- portant. We can't get it right when a majority of our people are not in the financial system. We can't operate with full capacity. So, it is essential financial inclusivity is driven to the extent that we are bringing every bankable citizen into the financial system.
India did it under the present govern- ment. India was able to open up the fi- nancial system and brought a lot of people into the network.
It will always be difficult to monitor funds if a large part of the funds are out- side the financial system. It will be diffi- cult for monetary policies or fiscal policies to work as planned.
But let me say that Nigerian transfor- mation depends on how effectively the financial sector mobilises capital, sup- ports infrastructure, treats the real sector and invests in digital innovation, because strong economies are built on the founda- tion of strong banks.
So, we have to push the message out to make sure that not just in the urban cen- tres but also in the rural areas, every adult, every Nigerian, should be able to come into the financial system. This will enable us to mobilise the resources towards effec- tive policies and implementation that will favour everyone.
How can Nigeria respond to the Trump tariff hike and maintain stable growth?
What we need to do is to believe and de- velop ourselves. Nigerians need to work together to defend our economy. What Trump is doing is for America, let us do it here for ourselves. We can come together and do it. n
'Strong economies are built on the foundation of strong banks.'