Senate Questions N25bn Bank Capital
To invite Soludo
From Kola Ologbondiyan in Abuja and Ayodele Aminu in Lagos
The Senate Committee on Banking, Insurance and Other Financial Institu-tions, yesterday expressed worry over the likely effect of the directive that banks should increase their capital base to N25 billion.
The Central Bank of Nigeria (CBN) at the end of the Bankers' Committee meeting in Abuja Tuesday gave banks up till December 2005 to increase their capital base from N2 billion to N25 billion.
But speaking at an interactive session with newsmen in Abuja yesterday, Vice Chairman of the Senate Committee on Banking, Senator Farouk Bunza-Bello, doubted the wisdom in the CBN directive and disclosed that the Senate would invite the apex bank governor, Professor Charles Soludo, to justify the N25 billion capital base.
Bunza-Bello noted that "when the CBN announced this increase, I've been at a loss as to what justified N25bn. Why are we moving from N2 billion to N25 billion? It doesn't seem to make sense to me. Whatever you are trying to achieve, I think it is better you achieve some moderation."
Describing the CBN directive as a vindication of his call for an increase of the capital base of banks to N10bn, Bunza-Bello, however, said that "should we increase the capital base to N25bn and have monopolies and oligopolies, can we reverse it? I think it would be rather clumsy for us to say that it is N25 billion and after one year when we see the unexpected, we would want to reverse to N15bn, after the damage would have been done.
"It is still my candid view that there is an urgent need for an increase in share capital to N10bn, but not N25 billion. By the time you increase share capital from N2bn to N25bn, you may have about 20 or 30 banks coming together; perhaps the 89 banks we have today would be pruned to about five or six."
According to him, "if the CBN was going to increase the capital base, I think the Senate deserves consultation. Had it been they consulted with us, we would have been able to sit down and then see the pros and cons of the increase.
"We are going to invite them, we would sit down with them and talk about it, we don't think at this point that N25bn is it. Nigerians are very concerned that should we go the whole hog to N25bn, people are going to lose jobs and there is every likelihood that we would have monopolies and by that time, it would be the banks that dictate what the interest rates should be. What would now be happening in the industry?," he asked
He noted that the development may lead to a reduction of 89 Managing Directors or Executive Directors of banks to "no fewer than five or six but the one that is critical is the number of employees at the lower levels, managers and below. Should you collapse the banks to about six, what we would have is the sacking of employees in thousands and this would worsen the unemployment situation."
Bunza-Bello said that as part of the committee's consultation with CBN in the past, the Senate got the former governor, Chief Joseph Sanusi, to back down on the proposed N1000 denomination and urged Soludo to ensure constant dialogue with the committee.
Meanwhile, the Chief Executive Officer of Pharex Limited, a credit rating agency, Mr. Eghes Eyieyien, yesterday said that the proposed N25 billion capital base for all banks would be problematic.
Rather, he advocated the stratification of banks into three categories with each having different kinds of capital base.
Speaking with THISDAY in Lagos, Eyieyien said the CBN should stratify banks into three - Investment, Universal and Settlement - with each having a capital base of N5 billion, N15 billion and N25 billion respectively.
Eyieyien who acknowledged that it is good for banks to consolidate through mergers maintained that N25 billion statutory minimum paid up capital for all banks may not achieve the desired effect.
"Why not stratify banks into three different categories instead of using a one side fits all? A bank like Investment Banking and Trust Company Limited (IBTC) noted for its track record in investment banking should not have more than N5 billion capital base, while the others (Universal and Settlement banks) be allowed to shore up their capital to N15 billion and N25 billion respectively," he said.
While maintaining that raising banks' capital is not the solution to the lingering problems in the banking industry, he said there is an urgent need to mobilise into the vaults of banks, majority of funds (about N450 billion) outside the banking system.
"The problem is that majority of the money in circulation are outside the banking system and this does not allow the CBN's monetary policy to work. How do we address this problem?" he asked.
The Pharez boss also emphasised the need for the use of community banks for the Federal Government poverty alleviation programme. The community banks, he said, serve as veritable means of engendering and sustaining economic growth since they touch the life of the average Nigerian.
"To grow the economy and help enhance the banking culture, we have only been focusing on deposit money banks. We need to refocus on community banks.
"A global financial system hardly has a place for small players except on a community bank level. Although Nigeria is still under-banked because of our banking culture, I doubt if banks have up to 10 million total customers out of the 120 million population we have in the country," he added.
If banks are stratified, he predicted that the number of banks that would be able to either stand alone or merge within the specified time frame might not be more than 40 and if the CBN sticks to the N25 billion capital base, the number of banks in existence might not be more than between 10 to 15.
Also, the chief executive of one of the medium-sized banks has called for caution. He said there should be room for small but strong banks to operate since the structure of the Nigerian economy differs from other foreign countries whose banks' capital base are being compared to ours.
"No two economies are exactly the same so you have to be careful otherwise you would be throwing both the baby and the bath away," he said.
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