As Nigerian banks continue to shore up their capital in line with the latest recapitalisation policy of the Central Bank of Nigeria (CBN), Bello Hassan, Managing Director/Chief Executive, the Managing Director of the Nigeria Deposit Insurance Corporation (NDIC), on Saturday in Lagos noted the need for appropriate deployment of the funds raised in the process.
The recapitalisation bid which has seen industry giants such as Guaranty Trust Holding Company (GTCO), Fidelity Bank, Access Holdings Plc, FCMB Holding and Zenith Bank, hurry approach the capital market, is expected to yield a cumulative N3tr in fresh funds.
Hassan, who was keynote speaker at the Finance Correspondents Association of Nigeria (FICAN) 2024 annual conference, themed “Nigeria’s Journey Towards $1tr Economy: Banks’ Re-capitalisation, Opportunities for Fintechs and Real Sector,” warned that “recapitalisation is not enough, and must be followed by focused lending to sectors” that give the best returns.
He, however, agreed that the recapitalization exercise would help ensure “a more stable financial system that is less susceptible to shocks, losses and bank runs.”
The conference theme he agreed is not only unique, but timely and necessary in view of the urgent need to reposition Nigeria’s banking industry, “explore growth opportunities offered by Fintechs to develop the real sector as the engine of growth, in supporting the current administration’s vision of achieving $1tr-dollar economy.”
Banks, he said, “are pivotal in promoting growth through intermediation function, by mobilizing financial resources from the surplus units to productive sectors of the economy. However, while discharging this important role, banks are exposed to some risks that may not seamlessly be accommodated by the normal operational profits and may therefore require strong capital to absorb them.”
The latest recapitalization initiative, he stressed, is therefore to enhance “the resilience, solvency and the capacity of our banks to absorb shocks and continue to support economic development of the nation by efficiently performing its function as the fulcrum of financial intermediation. The initiative aims at establishing a reliable and efficient banking sector that will guarantee the safety of the depositors’ funds and become a major player in Africa and global financial market.
“The role of strong and well capitalized banks in supporting the current administration’s bold vision of growing Nigeria’s economy to a $1tr must be appreciated by the relevant players in the financial sector.”
The fresh capital, the NDIC boss assured, offers opportunities, as well as potentials to make financing available and affordable for real sector growth, adding that achieving the desired level of financing “the window offered by banks in partnership with Fintechs, must be adequately harnessed.”
Supervisors, he said, must also “understand the interconnection among the various financial services providers and how their policies and actions can affect the efficiency and optimality of the overall financial system. For sustainable and inclusive growth, policy makers must create an enabling environment that support innovation, financial inclusion and growth while simultaneously protecting the markets, consumers, and investors.”
The exercise, he noted, also provides an opportunity for the country to attract significant foreign direct investment as the banks raise funds to enable them meet the new requirements.
Among others, he noted that the fresh capital “will stimulate economic growth through very enhanced lending capacity. It is instructive to also note that a well-capitalized banking industry will improve international credibility and boost our capital markets.”
Hassan assured that the corporation is poised to achieve its mandate of deposit guarantee, bank supervision, failure resolution and bank liquidation for which it has implemented several initiatives to enhance operational resilience required by the present global vulnerabilities and uncertainties as well as the effectiveness of what it does to further strengthen depositor confidence.
In line with those objectives, he said corporation has evolved a strategy “that
strives to ensure that the deposit insurance cover is adequate to support this objective in the banking sector.
“The Corporation’s approach to reviewing the insurance cover was based upon a comprehensive study in that regard. Consequent upon the findings of the study, the NDIC reviewed upwards, the maximum deposit insurance coverage levels for depositors of all license deposit taking institutions, in April this year.”
Baring in mind the importance of the optimum funding ratio to the sustainability of deposit insurance funds, he said NDIC is “developing an effective methodology for determining a realistic target funding ratio for the Corporation.
“This is aimed at ensuring that the deposit insurance scheme of the NDIC remains credible at all times and that the Corporation will be able to timely reimburse depositors,” he stressed.
In this regard, he said a review of the NDIC’s approach to the
determination of premium by banks to make it more risk-sensitive has reached an advance stage.
This, is “such that, the probability of the risk crystallizing becomes a major factor in the pricing methodology of our premium going forward.
“With regard to timely reimbursement of depositors in the event of license revocation, the Corporation has developed and implemented fabulous initiatives in response to historical depositor apathy and delay associated with the physical depositor verification process. NDIC has therefore, developed a depositor tracing framework targeted at tracing depositors through various approaches and ensure that, such depositors are duly reimbursed their deposits trapped in a failed bank. We have equally collaborated and leveraged on the NIBSS BVN database to locate depositors’ alternate account in other banks to seamlessly reimburse them without the need to come for physical verification,” Hassan stressed further.
In all these initiatives, he told the gathering that the CBN and NDIC seek “to promote safe, sound and stable banking system that is capable of providing the required financing to our productive sectors of the economy. This is crucial in the Nigeria’s journey towards the $1 trillion-dollar economy that we all aspire to attain.”
He therefore challenged financial journalists “to maintain its advocacy and quality reportage of the relevant initiatives and policies within the financial system in a manner that promote confidence and trust. Let me commend you all in this regard.”
Earlier in his welcome address, the chairman of the Finance Correspondents Association of Nigeria (FICAN), said the association decided to focus on the theme being the most topical issue in the economy today given that bold reforms are necessary to achieve the ambitious target of transforming into a $1tr economy at a time the country is ranked fourth largest on the continent, from its premier position.
A critical aspect of the target is the need for banks to recapitalise to enhance their financial intermediation capacity, support fintechs and the real sector.
There is no doubt, he believes, that post-recapitalisation, Nigerian banks will effectively increase lending to the Micro, Small and Medium-scale Enterprises and the process drive job creation, improve financial inclusion, enhance lending to critical sector such as agriculture, manufacturing and infrastructure, boost investor confidence and attract foreign director investment.
He however expressed concern over the continued devaluation of the Naira, suggesting the need to strengthen the nation’s macroeconomic indicator to ensure that a few years later they are not forced to return for fresh capital.
