Banks' Re-capitilisation'll Boost Tourism, Says Minister
By Justina Okpanku
Tourism Minister, Ambasador Franklin Ogbuewu, has said that the on-going re-capilisation of the banking sector would give the tourism industry a boost as a reduced number of banks with more solid capital bases would bring about a rapid introduction of credit card usage as they would be in a better position to handle the scheme.
While appraising the achievement of the Presidential Council on Tourism (PCT) in Lafia, Nasarawa State, recently, Ogbuewu argued that the introduction of the credit card scheme, which would de-emphasise the use of cash in the economy, was receiving attention with the Central Bank of Nigeria working towards its actualisation.
"The problem we are having is that (because of their) size, most of our banks (as they are now) may not be ready for that," he said. "But with the re-capitalistion, the banks will be capable. Those who are not accepting (credit cards) will be discouraged."
The Central Bank of Nigeria (CBN) recently directed that all banks operating in the country raise their capital by some 1150 per cent, from N2 billion to N25 billion (equivalent to $200 million) before December 2005.
Justifying the step, the Governor of the apex bank, Prof. Charles Soludo, said banks were expected to play a major role in the development of the economy. He also noted that the financial institutions had not lived up to expectation because of their weak capital base.
"It became a question of do something now or die; fail to do something, you still die, but do something and then have a chance of surviving," Soludo had said while explaining the need for the new capital. "If we do not do anything today, several banks would go under and we will end up with more job losses, but with this measure, we will end up with more job savings than if we allowed banks to go under."
o make banks comply with the directive, which would force some to merge or acquire weaker ones, he said: "Only the banks that meet the requirement can hold public sector deposits and participate in the Dutch Auction System (DAS) by end 2005."
Soludo had explained that the upward review of the capital base forms part of the major elements of the reforms by the CBN in the first phase of the banking sector reforms, adding that the apex bank would publish the names of banks that qualify by December 31, 2005 while those that merge and meet the minimum capital base by March 2005 would be rewarded.
He further explained that mergers and acquisitions especially in the banking industry is now a global phenomenon, citing various countries where mergers and acquisition had taken place.
"It will not be a world for marginal or fringe players. Countries that fail to proactively position themselves today will wake up then to continue to complain of marginalisation. I can see Asia consolidating. I see consolidation in Europe, America and South America. Consolidation is taking place in South Africa such that one bank in South Africa - Amalgamated Banks of South Africa (ABSA) has an asset base larger than all of Nigeria's commercial banks put together. Malaysia has recently gone through its first round of consolidation whereby about 80 banks shrunk to about 12 within one year.
"In Malaysia, banks were required to raise their capital base from about $70 million to $526 million in one year. In Singapore (with about three million people), banks have now consolidated to about six and further moving down to three with the second largest bank having capital base of about $67 billion."
He, however, noted, "in Nigeria, we have 89 banks with many banks having capital base of less than $10 million and about 3300 branches. Compare this to eight banks in South Korea with about 4500 branches or the one bank in South Africa with larger assets than all our 89 banks."
He maintained that Nigerian banking system remains very marginal relative to its potential and in comparison to other countries -even
in Africa.
Ogbuewu said that the President had promised to harness a budget allocation to take care of tourism projects until the issue of tourism funds are resolved.
PCT was set up by President Olusegun Obasanjo in Jos last year to advance the tourism industry.
Nigeria still runs a cash-based economy Nigeria, unlike the electronic cash system in advanced countries.
Compared to Europe and other parts of the world, business and leisure travellers use travellers' cheque or credit, not cash as used in Nigeria. Because of the huge amount of cash payment in Nigeria, the incidence of cash thefts is very high.
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