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CBN’s timeline for banks’ recapitlisation will ensure minimum disruptions in financial system – CPPE

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Dr. Muda Yusuf

The Center for the Promotion of Private Enterprise (CPPE) has said that the CBN’s strategic timeline for bank recapitalization will minimize disruptions and dislocations in the financial system.

Dr. Muda Yusuf Chief Executive Officer of CPPE stated this in a statement made available to Nairametrics said that the proposed recapitalization of banks should be done in a manner that would minimize shocks and disruptions to the banking system and the economy at large.

  • “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,” he said. 

Yusuf noted that with the current approach and timeline given by the CBN, the risk of bank collapse or hasty mergers and acquisitions should be minimized.

According to him, it is also laudable that the current categorization of banks with differential capital requirements has been maintained – international, national, and regional.

He noted that this is necessary to allow for inclusion and reduce the risk of dominance of the banking space by a few big banks.

Safety of depositors

Yusuf said it is imperative for the CBN to assure depositors of the safety of their funds in the banking system, irrespective of the current level of capitalizations of banks.

He added that 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 the 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 about the large interest rate spreads in the Nigerian banking system. The spread between deposits and lending rates is sometimes as high as 20%, 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,” he said. 

Access to credit by small businesses

Yusuf said access to credit by small businesses remains a major inhibition to economic growth and inclusion.

According to him small businesses account for over 50% of GDP but get less than 5% of credit in the banking system. The 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,” he said.

 


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