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Lemo explains CBN�s recapitalisation policy
Yemi Banjo, Abeokuta
The ongoing reform in the banking industry is a necessary one, if we are to avoid the distress that is looming in that sector, Deputy Governor, Central Bank of Nigeria, Mr. Tunde Lemo, has said.
Lemo stated this in a lecture entitled, �Paid up share capital increase for Nigerian Banks-Effects on Customers and Patrons,� presented to the Abeokuta Chamber of Commerce, Industry, Mines and Agriculture, in Abeokuta on Monday evening.
He said the reform was designed to strengthen the system and individual banks so as to empower them to redesign and re-conceptualise their mission in a rapidly growing economy and make them less susceptible to shocks.
Lemo, whose lecture was delivered by the Controller, CBN, Ogun State, Otunba Kunle Ogunsanya, noted that the financial sector reform policies put in place by the government had been a sub-set of the 1986 structural adjustment programme with a view to deregulating the banking systems.
According to him , this implied a paradigm shift from direct monetary control to the indirect monetary or market mechanism in the conduct of monetary and financial policies with the objective to achieving enhanced efficiency in the mobilisation and utilisation of resources.
He said to further liberalise the banking system, the universal banking scheme was introduced in 2001 with the objective of creating a more level playing field for the operations, engender competition and the achieve-ment of efficiency through economies of scale.
The CBN deputy governor noted, with sadness, that in spite of the adoption of core principles of basic committee on banking supervision for bad debts in certifying the health of banks, the system, had been characterized by high incidence of non-performing loans, capital deficiencies, weak management and poor corporate governance.
Lemo explained that the impact of the increase in share capital of banks from N2 billion to N25 billion was to inject fresh funds by the shareholders or consolidation through mergers and acquisitions.
According to him, studies had shown that mergers and acquisitions especially in the banking industry was now a global phenomenon.
He said, �In the united States, there have been over 7,000 cases of bank mergers since 1980, while the same trend occurred in the United kingdom.
In 1998 a merger in France resulted in a new bank with capital base of $688 billion, while the merger of two banks in Germany in the same year created the second largest bank in Germany with a capital base of US$541 billion.�
Lemo disclosed that in South Africa, one bank, Amalgamated Banks of South Africa, has asset base larger than all Nigerian banks put together.
Stating that while most banks in Nigeria had capitalization of less than $10 million, Lemo pointed out that the largest bank in the country, had a capital base of about US$240 million, compared to US$526 million for the smallest bank in Malaysia.
On a similar note, he added that the largest bank in South Africa, ABSA, had 650 branches whereas the largest bank in Nigeria had 358 branches.
According to him, in many emerging markets including Argentina, Brazil and Korea, consolidation had also become prominent, as banks strive to become more competitive and resilient to shocks as well as reposition their operations to cope with the challenges of the increasingly globalised banking systems.
He said after consolidation, more banks branches will be established, resulting in increased employment, as this had been the experience of many countries that had undertaken restructuring of their banking system
The Punch, September 15, 2004
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