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B N W: Biafra Nigeria World News |
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On bank�s N25bn capital baseThe Central Bank of Nigeria (CBN) has raised the minimum paid up share capital of banks in from N2 billion to N25 billion. CBN Governor, Professor Charles Soludo, unveiled the new policy at the 273rd session of the Banker�s Committee meeting held on Tuesday, July 6, at Abuja. It was his maiden meeting with the bank chiefs. He gave the banks 18 months to raise the new capital. By December 2005, banks unable to raise the money are expected to have gone into mergers with stronger ones or close shop entirely. Highlights of the policy include the publication of names of banks that met December 2005 deadline and CBN�s phased withdrawal of public sector funds from banks with effect from this month. CBN is also expected to adopt a zero-level tolerance in banks� reporting of their returns. According to Soludo, there will be collaboration between CBN and institutions like the Nigeria Deposit Insurance Corporation (NDIC), Securities and Exchange Commission (SEC), Nigeria Stock Exchange (NSE), fiscal authorities, National Assembly and the Bankers� Committee to work out the appropriate incentives and legal/regulatory framework to facilitate the rapid consolidation of the system. Technical committees will also be set up to provide free consultancy services for willing banks that want to explore mergers and acquisitions. �Only the banks that meet the requirement can hold public sector deposits and participate in the Dutch Auction System (DAS) by the end of 2005,� he added. Soludo reasoned that these measures would strengthen the banking industry, enhance size and individual efficiency of banks and the developmental roles of banks in the economy. We welcome this development against the backdrop of various claims and counter-claims concerning the state of health of the country�s banks. The developmental role of banks in growing an economy like Nigeria�s has been weak and largely neglected. There is need, therefore, to reinvigorate the banking system to enable banks perform this critical developmental role. Moreover, enhancing banks� capital is a global trend influenced by the need for efficient allocation of resources and risk reduction arising from better and high quality management. Bank capital is not a sufficient measure for coping with banking risks from a global perspective. It should be supplemented with a comprehensive deposit insurance scheme and detailed supervision/monitoring and intervention by CBN. The Central Bank of any nation usually assumes responsibility for coping with systemic risks of two kinds. First, the macroeconomic financial stability borders on CBN�s ability to control inflation. Second, financial, system stability, particularly the liquidity risk (as lender of last resort) and solvency risk of the banking system as a whole should not be undermined. It is the solvency risk of the banking system that can be monitored and controlled by regulations, capital adequacy constraints and supervision. It is imperative to note that the level of autonomy granted a Central Bank would determine how effectively it carries out its responsibility for the identified systems risk. Largely, the important aspect of capital adequacy is that it is concerned with broad classes of risks, it is consistent with deregulation and is implemented at the strategic level of individual banks. Winners should be allowed to gain while losers should be allowed to fail. Though banking risks are always there and our methods are constantly incomplete, societies through their financial system usually find ways of isolating, repackaging and redistributing some of these risks. While individual banks are expected to diversify specific risks, the Central Bank should equally reposition itself to pick up systemic risks.
Wednesday, July 14, 2004 |
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