The Central Bank of Nigeria (CBN) on Friday, said it will ask Deposit Money Banks to increase their capital base so as to service President Bola Tinubu’s $1tn projected economy.
The Governor of the CBN, Olayemi Cardoso stated this at the 58th Annual Dinner of the Chartered Institute of Bankers of Nigeria in Lagos where he was the special guest of honour on Friday.
He also said he is aware that there was much work to be done in the way the apex bank ran its operations, adding that he would need the collaboration of all stakeholders.
He said during the dinner, “In my recent speech at the 370th Bankers’ Committee meeting, I highlighted the economic agenda of the President. The administration has set an ambitious goal of achieving a GDP of $1tn over the next seven years.
“Attaining this target necessitates sustainable and inclusive economic growth at a significantly higher pace than current levels. It is crucial to evaluate the adequacy of our banking industry to serve the envisioned larger economy.
“It is not just about its current stability. We need to ask ourselves, can Nigerian banks have sufficient capital relative to the finance system needs in servicing a $1tn economy in the near future, in my opinion, the answer is no, unless we take action. As a first test, the central bank will be directing banks to increase their capital.
“Therefore, we must make difficult decisions regarding capital adequacy. As the first step, the CBN will be directing banks to increase their capital.”
According to him, it was important to make price stability a priority in order to safeguard the livelihood of Nigerians.
The apex bank boss blamed the recent negative perception of the CBN on corporate governance failure, diminished independence and deviation from the core mandate, inefficient forex rules, and venture into development financing.
“I’m confident and optimistic that by taking appropriate corrective actions and strategic steps, we can restore macroeconomic stability and address fundamental flaws,” he stated.
Cardoso also noted that the fluctuating exchange rate was hampering business growth and promised to be transparent and fair to all as the bank performs its function.
He added, “The removal of petrol subsidy and the adoption of a floating exchange rate and other government policies are anticipated to have a positive effect on the economy in the medium term.
“These measures are expected to enhance investors’ confidence, attract capital inflow, stimulate domestic investors and ultimately improve the level of external reserves. Additionally, they are expected to contribute to the stability of the local economy.
“Despite the challenging global and local economic environment, Nigeria’s financial sector has demonstrated resilience in 2023 with key indications of financial soundness largely meeting regulatory benchmarks.
“Stress test conducted on the banking industry also indicates its strength under mild to moderate scenario on sustained economic and financial stress. Although there is room for further strengthening and enhancing resilience to shocks. Therefore, there is still much to be done in fortifying the industry for future challenges.”
Cardoso also noted that the previous forex ban on those 43 items widened the gap between official and parallel market rates.
He also spoke on the activities of the bank before his appointment as the apex bank boss.
He noted that the quasi-fiscal policies of his predecessor, Godwin Emefiele, resulted in N10tn being pumped into the economy through intervention programmes.
He said, “I am aware that events over the past few years have also put the CBN in a bad light. These issues can be attributed to various factors, such as corporate governance failures, diminished institutional autonomy of the Central Bank of Nigeria, a deviation from the core mandate of the Bank, unorthodox use of monetary tools, an inefficient and opaque foreign exchange market that hindered clear access, a foray into fiscal activities under the cover of development finance activities. There was also a lack of clarity in the relationship between fiscal and monetary policies, among other challenges.
“Hitherto, the CBN had strayed from its core mandates and was engaged in quasi-fiscal activities that pumped over N10tn into the economy through almost different initiatives in sectors ranging from agriculture, aviation, power, youth and many others. These clearly distracted the bank from achieving its own objectives and took it into areas where it clearly had limited expertise.”
Cardoso assured that the issues affecting the bank would be tackled under his watch.
He said, “Under my leadership, the Central Bank of Nigeria will vigorously address these issues. We will tackle institutional deficiencies, restore corporate governance, strengthen regulations, and implement prudent policies. We assure investors and the business community that the economy will experience significant stability in the short-to-medium term as we recalibrate our policy toolkits and implement far-reaching measures.”