Latest news with #JOSEPHINOKOTONG
Zawya
21-04-2025
- Business
- Zawya
CBN: Aligning banks' recapitalisation with monetary, fiscal policies, FG's economic vision
In this piece, JOSEPH INOKOTONG reports how the Central Bank of Nigeria (CBN's) banks' recapitalization aligns monetary, fiscal policies with the Federal Government's vision of prosperity for the people, businesses and the economy. The Central Bank of Nigeria (CBN's) decision to embark on the recapitalisation of banks was to align monetary, fiscal policies with the Federal Government's vision of prosperity for the people, businesses, and economy. The exercise, which is far underway, is recording significant successes, with successful capital raising by many banks and a surge in credit expansion to the domestic economy. CBN Governor, Olayemi Cardoso, explained that with stronger capital bases, banks can provide more loans to businesses and support the government's quest for a $1 trillion economy. Building bigger and stronger banks comes with great benefits to the banks, their customers, and the wider economy. For a government that wants to grow its economy to the $1 trillion mark, the support of the financial services sector led by the Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, is crucial. The CBN Governor had explained that bank recapitalisation ensures that lenders are well-capitalised, enabling them to take on greater risks, particularly in underserved markets. With stronger capital bases, banks can provide more loans and financial products to Micro Small and Medium Enterprises (MSMEs), rural communities, and other vulnerable segments that have previously struggled to access formal financial services. The CBN had on March 28, 2024, announced a two-year bank recapitalisation exercise which commenced on April 1, 2024, and is expected to end on March 31, 2026. The recapitalisation plan requires a minimum capital of N500 billion, N200 billion, and N50 billion for Commercial Banks with International, National, and Regional licenses, respectively. Others included merchant banks N50 billion; non-interest banks with national licence N20 billion, and non-interest banks with regional license will now have N10 billion minimum capital. The 24-month timeline for compliance ends on March 31, 2026. Cardoso said the recapitalisation policy not only strengthens financial stability but also serves as a catalyst for inclusive growth. 'By enabling banks to extend more credit to MSMEs, we enhance job creation and productivity. Furthermore, with increased capital, banks can invest in technology and innovation, crucial for driving digital financial services such as mobile money and agent banking. These technologies are keys to breaking down geographic and economic barriers, bringing financial services to even the most remote areas,' he stated. He said Nigeria has what it takes to deepen financial inclusion and support the growth of business and economy, stressing that the recapitalization exercise would also support the government's efforts to achieve a $1 trillion economy. The CBN further underscored the importance of banking recapitalisation as a major catalyst for the achievement of the $1 trillion economy agenda of the government. Banking sector remains robust Cardoso explained that the banking sector remains robust, with key indicators reflecting a resilient system. 'The non-performing loan ratio remains within the prudential benchmark of five percent, showcasing strong credit risk management. The banking sector liquidity ratio comfortably exceeds the regulatory floor of 30 percent, a level that ensures banks are maintaining adequate cash flow to meet the needs of customers and their operations. The recent stress test also reaffirmed the continued strength of our banking system. 'I am pleased to note that a significant number of banks have raised the required capital through rights issues and public offerings well ahead of the 2026 deadline. I believe that the banking sector is in a strong position to support Nigeria's economic recovery by enabling access to credit for MSMEs and supporting investment in critical sectors of our economy,' he said. Deputy Governor, Corporate Services, Central Bank of Nigeria (CBN), Ms. Emem Usoro, said the journey to a $1 trillion economy requires structured planning, clearly defined policies, unwavering implementation, and an inclusive approach that aligns public and private sector interests. In her Keynote address in Abuja at a seminar organised by the CBN for business editors and financial correspondents, Usoro said that one of the key components of the $1 trillion ambition is the recapitalisation of Nigerian banks. She noted that banks must be sufficiently capitalised to meet the financial demands of a larger and more dynamic economy. 'As we work towards building a $1 trillion economy, we must consider the recapitalisation of our banks to be able to fund, finance, and power the economy, and to favourably compete globally,' Usoro said. She further called for a collective effort from all stakeholders, adding that the financial system must be prepared to play its role in powering development. 'We should particularly pay significant attention to bank recapitalisation to ensure that our banks are strong, resilient and stable enough to carry out financial intermediation, and the much-needed financing of development projects and programmes,' Usoro said. Supporting her position, Dr. Olubuka Akinwumi, Director of the Banking Supervision Department at the CBN, provided insights into the state of the banking sector. He disclosed that banks have so far remained within the prudential thresholds stipulated by the regulator, including benchmarks for the capital adequacy ratio and non-performing loans. 'As we speak, all our banks are still within the prudential thresholds that were set. And they are actively pursuing various recapitalisation efforts,' Akinwunmi said. On the possibility of mergers and acquisitions, Akinwumi said such developments may occur naturally as banks assess their positions and seek strategic alignments. 'Banks are currently focused on raising their capital, but engagements are ongoing, and when the opportunities arise, they will be taken,' Akinwunmi added. Regarding the licensing of new banks, he confirmed a recent uptick in applications and approvals, noting that the apex bank continues to monitor and support institutions that align with national development goals. He said priority sectors such as agriculture, infrastructure, and manufacturing are receiving attention from both the government and financial institutions, as they are key to achieving a trillion-dollar economy. 'If you look at this year's national budget, it reflects a clear emphasis on critical sectors like health, education, infrastructure, and agriculture. Banks are taking cues from these priorities, recognizing them as viable areas for business expansion,' Akinwumi said. Responding to questions on how many internationally active banks had met the new N500 billion capital requirement, he noted that substantial progress has already been made. 'We are halfway through the journey in terms of timeline, and capital already raised; we are also at least halfway through. That is a positive signal,' he said. He added that starting the recapitalisation process early has helped insulate the financial system from emerging global and domestic shocks. 'The emerging global economic shifts and pressures were not lost on the management of the CBN. We started early. If we had waited till now, the challenges would have been greater. But we acted in time,' he remarked. Dr. Akinwumi expressed confidence that the recapitalisation requirements will be met, stressing that existing shareholders' funds continue to serve as a buffer. However, the CBN deliberately opted for fresh capital inflows, particularly from foreign investors who have shown renewed confidence in Nigeria's financial system. 'International perception of Nigeria's banking sector is improving. The reforms over the past year, especially around the foreign exchange regime and improved transparency regarding reserves, have boosted investor confidence,' he said. He cited recent disclosures on Nigeria's net reserves and improvements in regulatory credibility as key factors that are reshaping the outlook for foreign direct investment in the banking sector On the Loan to Deposit Ratio (LDR), Akinwumi explained that the current 50 percent benchmark does not reflect a reluctance to lend but rather a contextual response to inflation and other macroeconomic challenges. 'As the macroeconomic environment stabilizes, banks will naturally increase lending. It's a cautious approach to ensure that lending supports sustainable growth,' he said. He also touched on the Cash Reserve Ratio (CRR), stating that there has been marked improvement in transparency. Banks now have a clearer understanding of CRR computations, unlike in the past, which enhances predictability and compliance. Addressing Small and Medium Enterprises (SMEs) funding, he confirmed that banks continue to make provisions, but the CBN remains actively engaged to ensure proper disbursement and sectoral targeting. Supervisory oversight, he explained, is being deployed to verify compliance and effectiveness of disbursed funds. On incentives, he said the most powerful incentive for banks lies in the opportunities provided by a growing economy. 'A stronger bank can take on big-ticket businesses, including infrastructure financing. The current reforms, such as the infrastructure concessioning plans, present viable business opportunities for well-capitalized banks,' Akinwumi explained. The capital verification process, according to him, is thorough and designed to ensure that only legitimate, unborrowed funds are used for recapitalisation. An industry-wide tracking mechanism has been established to streamline verification across institutions and enhance collaboration. 'Our examiners follow each capital trail meticulously, moving from one bank to another as necessary. Even if it's not your bank under verification at that moment, we expect full cooperation to trace the sources of capital,' he said. On the broader question of resilience to global shocks, he maintained that Nigerian banks are being positioned to remain attractive to investors and capable of withstanding external disruptions. 'CBN is monitoring developments closely and adjusting where necessary. The recapitalisation process is not just about compliance, it's about long-term stability, competitiveness, and economic transformation,' he said. The Group Managing Director of United Bank for Africa (UBA), Mr. Oliver Alawuba, described the CBN's ongoing bank recapitalisation policy as both timely and essential in positioning the financial system to meet the demands of a growing and globally competitive economy. According to Alawuba, the initiative is expected to boost the resilience of the banking sector by strengthening its capacity to withstand economic shocks such as inflation, currency volatility, and global geopolitical disruptions. He noted that the policy will also place Nigerian banks on a stronger footing to finance the country's long-term economic transformation, including funding of large-scale infrastructure and industrial projects. Alawuba stressed that the recapitalisation policy goes beyond regulatory compliance, but is a forward-looking strategy aimed at equipping Nigerian banks to operate at the scale and sophistication required by a trillion-dollar economy. He said the move would enhance the sector'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. 'Nigerian banks need adequate capital buffers to meet the evolving demands of these sectors. Without this, the industry cannot effectively rise to the challenge,' he said. Alawuba pointed out the sharp contrast between Nigerian banks and their counterparts in more advanced economies, where bank assets typically range from 70 to 150 percent of Gross Domestic Product (GDP). In Nigeria, bank assets accounted for just 11.97 percent of GDP as of 2024, a gap he said must be addressed if the country's financial system is to align with international standards. He commended the CBN's recent directive mandating a significant increase in minimum capital thresholds, describing it as recognition of the urgent need for stronger financial institutions capable of delivering on national priorities such as infrastructure expansion, digital transformation, inclusive financial services, and economic diversification. Alawuba reiterated that a robust, well-capitalised banking sector is critical for Nigeria's aspiration to become a one trillion-dollar economy, and the recapitalisation drive is a step in the right direction to achieve that goal.
Zawya
06-03-2025
- Business
- Zawya
Looking beyond GDP rebasing in Nigeria
Gross Domestic Product (GDP) rebasing is just a statistical update; real progress comes from policies that drive sustainable and inclusive economic development, writes JOSEPH INOKOTONG GROSS Domestic Product (GDP) is the total monetary value of all goods and services produced within a country's borders over a specific period (usually a year or a quarter). It is the most commonly used measure of a country's economic performance. GDP is calculated using the expenditure approach, which includes: consumption – household spending on goods and services (e.g., food, rent, healthcare). Investment – Business spending on infrastructure, machinery, and housing. Government Spending – public sector expenditures on services like education, defence, and infrastructure, and Net Exports (Exports – Imports), which is the value of a country's exports minus its imports. Types of GDP are nominal GDP, which measures the value of goods and services at current market prices, without adjusting for inflation; Real GDP adjusts for inflation, providing a more accurate reflection of economic growth, and Per Capita GDP, which is GDP, divided by the population, indicating the average economic output per person. GDP by Sector means breaking down GDP by industries such as agriculture, manufacturing, and services. GDP is important in any nation's economy because it measures economic growth. Higher GDP indicates a growing economy, while a decline signals a slowdown or recession. Also, it guides policy decisions of Governments as they use GDP data to plan budgets, set interest rates, and implement economic policies. A strong GDP attracts investment, and can increase investor confidence and foreign direct investment (FDI). Similarly, it compares economic performance. The GDP helps compare economic strength between countries or over time. However, GDP has limitations; it does not account for income inequality, environmental impact or overall well-being. That is why other indicators like Human Development Index (HDI) and Genuine Progress Indicator (GPI) are sometimes used alongside GDP. Adjunct to this is the overriding need for Gross Domestic Product (GDP) rebasing, which is the process of updating the base year used to calculate a country's GDP to better reflect the current economic structure. It involves revising the methods, data sources, and sectoral weights to ensure that GDP estimates accurately capture the economy's size and composition. A number of reasons abound for rebasing the GDP of any country. One of them is that it reflects structural changes. Over time, new industries emerge, and some sectors become less significant. Rebasing ensures these changes are accounted for. It improves data accuracy by incorporating updated economic data, such as new surveys and better statistical methods. It enhances international comparability by aligning national statistics with global standards set by organizations like the International Monetary (IMF) and World Bank. The effects of GDP rebasing can be noticed in the increased GDP size. Often, GDP figures rise after rebasing because previously unaccounted sectors (e.g., digital economy, informal sector) are included. Changes in economic indicators are also discerning after rebasing. Ratios like debt-to-GDP and tax-to-GDP may change, influencing policy decisions. Its impact on investment and credit ratings are always noticeable as a higher GDP may improve a country's attractiveness to investors and affect creditworthiness. As a result of these and other factors, many countries rebase their GDP every five–10 years to keep their economic assessments up to date. Interestingly, while GDP rebasing helps provide a more accurate picture of the economy, it does not automatically improve living standards or economic performance. It is, therefore, necessary that a country should focus on the certain priorities beyond GDP rebasing. Aside rebasing its GDP, a country should pay more attention to economic diversification by reducing dependence on a single industry (e.g., oil, agriculture) but move into developing manufacturing, technology, and services sectors. Economic diversification in a country is the key to sustainable growth. It is the process of expanding a country's economic activities across different sectors to reduce dependence on a single industry or resource. It helps improve resilience to economic shocks, create jobs, and promote long-term stability. Economic diversification is important because it reduces economic vulnerability. Countries that rely on one sector (e.g., oil, agriculture) face high risks from price fluctuations or external shocks. It boosts Job creation as a diversified economy provides employment opportunities in multiple industries, reducing unemployment and underemployment. Also, it increases economic stability because a broad-based economy is more resilient during crises (e.g., commodity price drops, global recessions). It enhances competitiveness. Diversification fosters innovation, industrial growth, and global trade opportunities. In the same fashion, it improves revenue Generation. A diverse economy expands the tax base and reduces reliance on a few revenue sources. Amidst the lofty goals of economic diversification is the overriding issue of how a country can achieve economic diversification. Experts say it can be achieved through strengthening the industrial and manufacturing sector by investing in value addition industries, e.g., processing agricultural products instead of exporting raw materials. Beyond this, a country should develop manufacturing hubs to produce goods locally and reduce import dependence, and promote export-driven industries like textiles, automotive, and technology products. Expanding the Services sector is another way of economic diversification. A country should strive to develop its financial services, including banking and fintech, to boost investment. It should promote tourism and hospitality by improving infrastructure and marketing attractions, and support the creative industries, e.g., film, music, fashion, and digital content. Supporting Small and Medium Enterprises (SMEs) is a bold step in economic diversification of a country. This can be achieved by providing affordable financing, training, and market access to SMEs. Creation of business-friendly policies to encourage entrepreneurship is another method that can enhance economic diversification. For example, by promoting local industries through 'Made in Nigeria' campaigns could assist in the process. Investing in technology and innovation via a robust support to digital transformation in businesses and government services will engender the diversification of the economy. This can come to fruition by encouraging research and development (R&D) in science, engineering, and artificial intelligence; also by building tech hubs and incubators to support startups and software development. In Nigeria, Agriculture has the potential to create jobs, and promote sustainable growth therefore strengthening the Agricultural Sector should seriously be considered when tinkering with economic diversification. There should be a deliberate effort to move beyond subsistence farming by investing in mechanized agriculture; developing agro-processing industries to add value to raw farm produce, and encourage climate-smart agriculture to ensure long-term food security. Concerted effort should be made to enhance trade and regional integration by joining regional trade agreements to expand export markets; improve logistics, ports, and transport systems to facilitate trade, and reduce trade barriers and improve ease of doing business. Investment in human capital development is necessary to achieve real economic diversification. In this vein, there should be improvement in the education systems to match market needs; promotion of vocational and technical training for skill development by encouraging STEM (Science, Technology, Engineering, and Math) education for industrial growth. Examples abound of countries that have successfully diversified their economies. For instance, the United Arab Emirates (UAE) reduced its dependence on oil by investing in tourism, real estate, finance, and technology. Malaysia transitioned from an agriculture-based economy to an industrial and services powerhouse, and South Korea moved from agriculture to high-tech manufacturing (Samsung, Hyundai) and services. Economic diversification is a long-term strategy that requires strong policies, investment, and innovation to ensure sustainable growth and resilience against economic shocks. Again, looking beyond GDP rebasing is important, and it entails supporting entrepreneurship and innovation to drive sustainable growth. For this to take place, infrastructure development must take place. Government and other stakeholders should invest in roads, energy, telecommunications, and transportation to support business growth and attract investment. They must improve digital infrastructure to boost e-commerce and the digital economy; revamp education and vocational training to create a skilled workforce as well as strengthen healthcare systems to improve productivity and life expectancy. The government and partners must ensure inclusive economic growth by promoting policies that reduce income inequality and create job opportunities; support small and medium-sized enterprises (SMEs) with financing and training. Strengthening governance and institutions should occupy the authority's attention, while striving to combat corruption and improve transparency to attract foreign and domestic investment. The legal and regulatory frameworks should be strengthened to support business operations. Industrialisation and value addition must be in a country's development plans, it states how and when to move from exporting raw materials to producing finished goods. It should invest in agro-processing, manufacturing, and technology-driven industries. Furthermore, priority should be given to sustainable development where a balance is struck between economic growth with environmental protection and climate resilience as well as promoting renewable energy and green initiatives to ensure long-term sustainability. Uppermost in the scheme of things is the need to strengthening the financial systems by expanding financial inclusion to bring more people into the formal economy, and improve access to credit and capital markets to support businesses. It is pertinent to state that GDP rebasing is just a statistical update; real progress comes from policies that drive sustainable and inclusive economic development. Therefore, the government and all stakeholders must look beyond rebasing the GDP, and focus more on growing the economy for shared prosperity. Copyright © 2022 Nigerian Tribune Provided by SyndiGate Media Inc. ( by Joseph Inokotong
