The federal government established a bold objective to expand the economy to a $1 trillion valuation by 2030. To accomplish this aim, substantial contributions will be needed from the financial services industry, led by CBN Governor Olayemi Cardoso. The central bank has implemented crucial policies such as increasing capital requirements for banks, reforming foreign exchange systems, combating inflation, and enhancing supervisory control—all aimed at achieving this target. Many experts consider this goal both ambitious and daring yet achievable. BAMIDELE OGUNWUSI , writes:
When nearly two years ago, the Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso asked banks to brace up for new round of banking sector recapitalisation to secure enough capital to serve $1 trillion Gross Domestic Product (GDP) target set by the Federal Government, many took the directive with skepticism.
Cardoso emphasized that President Bola Ahmed Tinubu’s economic strategy aims to reach a $1 trillion GDP by 2030, noting that the present bank capitalization levels are inadequate for supporting an economy of this scale.
Cardoso questioned, "Do Nigerian banks possess enough capital compared to what the financial system requires to support a $1.0 trillion economy in the coming years? Personally, I believe the response is 'no' unless we intervene. Consequently, we need to make tough choices about maintaining adequate capital levels. To start with, we plan to instruct banks to boost their capital."
He went on to say, "The administration has established a lofty target for the nation’s economy, as detailed in the extensively shared Policy Advisory Council report. The objective is to reach a Gross Domestic Product (GDP) of $1.0 trillion through specific focus areas and strategic initiatives."
As per his view, achieving this significant objective requires sustainable and inclusive economic expansion at a notably faster rate compared to what we currently have.
"The administration has already started this process with fiscal reforms, which include eliminating the gasoline subsidy and consolidating the foreign exchange market rates," he stated.
Currently, numerous banks have replenished their capital reserves, whereas some are exploring merger and acquisition opportunities to strengthen their financial positions.
The head of CBN stated that this move aligns with their initiatives to enhance financial inclusion and boost economic development. In pursuit of these goals, the central bank has implemented updated minimum capital requirements for banking institutions.
He stated: "This strategic action guarantees that banks will be adequately capitalized, allowing them to assume higher levels of risk, specifically within under-serviced sectors. By bolstering their capital foundations, these institutions will be better positioned to offer an increased volume of loans and various financial instruments to micro, small, and medium enterprises (MSMEs), rural areas, and other disadvantaged groups who historically found it difficult to obtain conventional financial services."
Bank recapitalisation timelines
On March 28 of last year, the Central Bank of Nigeria (CBN) introduced a two-year bank recapitalization initiative set to begin on April 1, 2024, with an anticipated conclusion date of March 31, 2026.
The recapitalization scheme mandates a minimum capital requirement of N500 billion, N200 billion, and N50 billion for commercial banks holding international, national, and regional licenses, respectively.
Cardoso said the recapitalisation policy not only strengthens financial stability but also serves as a catalyst for inclusive growth.
Enabling banks to provide additional loans to micro, small, and medium-sized enterprises (MSMEs) boosts employment generation and enhances efficiency," he noted. Additionally, with extra funds, banks have the opportunity to invest in technological advancements and innovations essential for advancing digital financial solutions like mobile payments and agency banking. Such tools play an important role in overcoming geographical and economic obstacles, thereby extending access to financial services to some of the hardest-to-reach regions.
The Central Bank of Nigeria (CBN) serves as the ultimate signer for a three-party capital validation committee that comprised the Securities and Exchange Commission (SEC), along with the Nigeria Deposit Insurance Corporation (NDIC).
According to the recaptitalization guidelines, conducting a thorough capital verification is essential prior to approving the allotment proposal and disbursing funds to the bank. This step ensures the successful conclusion of the offer process and the incorporation of the fresh capital into the bank’s capital foundation.
Experts predicted that banks might generate approximately 5 trillion Nigerian naira during the two-year capitalization period.
With roughly one year left until the recapitalization deadline, banks have accelerated initial discussions regarding potential mergers and acquisitions.
Analysts indicated that "there has been an increase in discussions about mergers and acquisitions" as banks explore other possibilities besides seeking new capital through issuance.
In 2024, the CBN approved the initial merger and acquisition agreement between Providus Bank and Unity Bank. Access Holdings Plc, Ecobank Nigeria, and Jaiz Bank Plc have fulfilled the updated minimum capital standards.
The Afrinvest banking sector report detailed how the Central Bank of Nigeria (CBN), as outlined in their March 2024 capital requirements guidelines, introduced an updated capital framework aimed at reinforcing the stability of the financial system. This move was intended to support the government's objective of achieving a $1 trillion economy by 2032 through various licensed banks adapting to these revised standards.
The recapitalization initiative was also prompted by the significant decline in banks' capital cushion after 2010 when measured both in real terms and concerning foreign exchange compared to their positions in 2010.
According to the 2023 average, the current minimum capital requirement has decreased by 77.1 percent in foreign exchange terms and by 76.5 percent in real terms. The Central Bank of Nigeria (CBN) factored in the effects of economic challenges on the banking sector’s risk profile and financial standing when setting the new benchmark, as stated in the report.
Stakeholders speak
Adedotun Sulaiman, the Chairman of Parthian Group, highlighted the crucial importance of investment for economic growth, noting, "Capital is the lifeblood of the economy; without it, progress would be severely limited."
At the unveiling of the firm's two investment funds in Lagos, he stated that these offerings represent their humble contribution towards raising the necessary capital to attain the President's ambitious target of building a $1 trillion economy.
He stated, "It should be noted that Nigeria and other developing nations face a significant shortage of capital. This lack of sufficient funding hinders our ability to construct essential infrastructure and foster economic development. To address this issue, we are establishing various financial instruments aimed at gathering resources from individual investors, both small-scale savers and corporations. Subsequently, these pooled assets will be directed towards those who require them for projects such as road construction, school building, and enhancing healthcare facilities," he explained.
Sulaiman stated, "This is our approach; it’s our small effort towards fostering Nigeria's economic growth. A $1 trillion GDP might seem overly optimistic, even daring. However, part of living is setting challenging goals for oneself. Can it be done? Absolutely, though achieving this will demand immense dedication and significant resources. Moreover, could our nation step up to meet these challenges? In my view, yes."
Other experts suggested that the government's aim for a $1 economy would necessitate implementing standardized business practices in Nigeria's public sector to promote significant changes within the industry.
They encouraged Nigeria to implement sound governance policies to more closely match global business norms. Additionally, she emphasized the necessity of establishing a legal foundation to facilitate these changes and create frameworks that can promote nationwide progress.
Increased foreign exchange influxes through money transfers
So far, remittances via International Money Transfer Operators (IMTOs) have surged by 79.4 percent to reach $4.18 billion during the initial nine months of 2024, highlighting the beneficial effects of foreign exchange reforms.
Furthermore, the CBN removed the 2015 ban that prohibited 41 goods from obtaining foreign exchange at the official rate to boost trade and investments.
These changes and advancements demonstrate the bank's dedication to fostering an atmosphere conducive to equitable economic growth. Nonetheless, maintaining overall economic balance necessitates continuous oversight and a forward-looking approach to monetary policies.
"As we transition from unconventional to conventional monetary policy, the CBN continues to remain dedicated to regaining trust, bolstering policy reliability, and concentrating on its primary objective of maintaining price stability," Cardoso reiterated.
In order to address the urgent issue of inflation, the Central Bank of Nigeria took prompt action in 2024 by increasing the Monetary Policy Rate by 875 basis points to reach 27.5%. This critical step was necessary to curb inflation and reinstate economic stability.
Experts argue that these initiatives implemented during Cardoso's tenure have not just boosted the foreign exchange market and established enduring stability but also set the stage for consistent economic expansion.
Significantly, the durability of the local economy, reinforced by a solid banking sector featuring healthy financial metrics, inspires trust in the overall economic framework.
Key financial metrics like capital adequacy, liquidity, and non-performing loan ratios remained inside safe thresholds. This indicates effective regulatory supervision and robust risk-management strategies within the sector. Notably, substantial loans were provided to industries driving economic expansion including farming, production, trade, along with individual borrowers and families.
Credit significantly contributed to boosting economic activities and enhancing output performance, highlighting the importance of financial institutions and robust regulations spearheaded by the Central Bank of Nigeria.
Moreover, the CBN has implemented various measures to address inflation. Recently, the central bank organized the Monetary Policy Forum 2025, which brought together fiscal authorities, legislators, representatives from the private sector, development partners, specialists, and academics under the theme "Steering the Course of Deflation."
Cardoso stated that the central bank’s primary objective is to maintain price stability, proceed with the planned shift towards an inflation-targeting regime, and implement measures to boost purchasing power and alleviate economic difficulties.
The Central Bank of Nigeria (CBN) is maintaining its strict stance on monetary policy with the goals of controlling inflation and steadying the economy.
These steps have resulted in observable improvements: relative calm in the foreign exchange market, reduced discrepancies in exchange rates, and an increase in external reserves to more than $40 billion by December 2024.
The Central Bank of Nigeria (CBN) likewise concentrated on bolstering the banking sector by implementing updated minimum capital requirements for banks (to take effect in March 2026). This move aims to guarantee stability and prepare Nigeria’s banking industry for an economic landscape valued at $1 trillion," he stated.
In order to boost the capabilities of the foreign exchange market, the central bank implemented an Electronic Foreign Exchange Matching System, which has demonstrated effectiveness in other markets.
The initiative aimed to address irregularities in the foreign exchange market, curb speculative behavior, and promote clarity. The EFIMS, commonly found in both advanced and emerging markets, provides up-to-date data on exchange rates, trade volumes, and market actions.
Many stakeholders believe that under Cardoso's leadership, these measures have not just boosted the foreign exchange market and established enduring stability, but also created a strong base for economic growth and business prosperity.
The banking sector continues to be robust and resistant.
Cardoso stated that the banking sector continues to be strong, with crucial metrics indicating a stable financial system.
"The ratio of non-performing loans stays below the prudent threshold of five percent, demonstrating robust credit risk management. Additionally, the liquidity ratios across the banking sector significantly surpass the required minimum of 30 percent, ensuring that financial institutions have sufficient cash reserves to address customer demands and operational requirements. Furthermore, the latest stress tests confirm the ongoing stability of our banking framework," he stated.
To guarantee that our financial system adequately supports economic expansion, measures to reinforce banks' capital reserves were unveiled in 2023, with a plan for implementation over a two-year period.
"I'm delighted to observe that numerous banks have successfully increased their necessary capital through rights issues and public offerings well before the 2026 deadline! This puts the banking sector in an excellent position to aid Nigeria’s economic revival by facilitating credit accessibility for MSMEs and encouraging investments in key areas of our economy," he stated.
Similarly, Other Financial Institutions (OFIs) have substantial potential to boost productivity and economic development by increasing access to credit and financial services for underprivileged individuals and enterprises.
To realize this unexplored potential, the CBN plans to bolster crucial institutions—especially Primary Mortgage Banks (PMBs) and Microfinance Banks (MFBs)—in order to improve their effectiveness and outcomes.
Provided by Syndigate Media Inc. ( Syndigate.info ).
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