 In his speech at the CIBM end of year conference, the governor of the CBN, Yamika also hinted at the need for the banks to brace for recapitalization considering the significant loss in the value of the current capitalization and the capital required for the envisioned $1 trillion economy. Analysts say the approach should instead be of incentives and not coercion, where the strong performance of the banking sector in the market would suggest an attractive return on the banking index. There seems not to be a concern for the bigger banks as investors would willingly commit resources given the lucrative opportunities in the sector. I have international finance and economic analyst, Mukta Mohamed, joining me now to discuss further. Good morning to you Mukta, many thanks for joining us on Business Insights. Good morning Justice, thank you for having me this morning. Mukta, you know it's been 19 years, I remember in 2004 when there was so much talk about a bank and capitalization and that the market capital market was booming, it's been 19 years now since the CBN announced banks to recapitalize to $25 billion. Remember what happened with acquisitions, mergers and marriages of misfits, if I must say. But first of how do you react to this development? Well, just in very good development, in the tier one bank, it might be a turbulent time for the tier two banks. So in a small time, I'm excited about it, like you said, we did this 19 years ago when we moved from $2 billion to $25 billion, I was over 1,200% increment. So after that time, we've seen banks recapitalize, came to the market, we've seen shareholders as firms expand, especially in the tier one bank. So like you said, in the tier one bank has anything to fear, maybe the tier two banks may have some challenges, not all of them, but again, some of them have been proactive. They're already trying to assess the market before this policy came out from CBN. He popped in that we're not clear yet about how the policy is going to work. So we're still waiting for the direction of the CBN. What would be the minimum capital requirement of the banks? Some of the tier one banks are doing a profit of over one trillion Naira. Also, some of them in terms of dollars have recapitalized, even to the tune of over $500 million. So it depends on what the CBN governor will be looking at. Or the CBN will be looking at where and by the $1 trillion economy. But again, when you want to drive the $1 trillion economy, you ask yourself, have you been able to put in place a $1 trillion physical policy? Because if you put in place a $1 trillion monetary policy and you don't have a $1 trillion physical policy, then you are in for a shocker. As much as the central bank has not actually given a direct policy guidelines on how much recapitalization the banks are supposed to do this time around, but the reactions have been trailing that development. I have spoken to some analysts on them. They have a mixed grill of how it should go in terms of approach. Some are saying that it should be more incentives and not coercion. How should the CBN go about this? Do you agree with the whole coercion and incentives based on the approach? I think both have to come to play. You can just use one, depending on which. Like I said, if you are at your one bank, then you must have a lot of incentives. If you are at your one bank, you have to have a lot of correlation. If you are at your one bank, then you need to begin to think about incentives. So it all depends on where we are. Some of the analysts have said that it is not recapitalization that definitely makes the banks stronger. It is the strategy behind it of recapitalization. Because if you recapitalize, do you have the monetary policy to monitor this recapitalization? Do you have the human capital to make sure that you drive this recapitalization? Because this will involve a lot of liquidity in the system. And again, you remember when we did the first recapitalization, we saw a lot of banks came in at that time. The CBN governor, the now governor of Anambra State, Chifu Masulo, said it would be typical for any Nigerian bank to fail. But it didn't take long after the recapitalization. We saw a lot of banks going out. And that was due to lack of human capacity to monitor the type of liquidity and risk that some of these banks were taking at that time. So if you're talking about recapitalizing the bank, how much human capacity have you developed as a regulator? And how much capacity, human capacity have you also developed as a money deposit bank to money the kind of liquidity that is coming into the system? So you're talking about liquidity. Before I move on to my next question, I just want to analyze some things you said in passing. When we did the last recapitalization 19 years ago with some banks failing and most banks were exposed as per their weaknesses and all of that. Do you see that plane this time around? Would this new capitalization show us exactly the true picture of what the commercial banks and deposit money banks are really doing in terms of strength? Just in the pictures are there to show if you follow their earnings. So you could see that we categorize the banks tier one, tier two banks now. Because even in the tier two banks, you have super tier two banks that are beginning to compete favorable with the tier one bank. So it depends on where you are and what you are trying to achieve. For me, I think when you talk about that, I think the banks have really drive the Nigerian economy. Thus far they've been one of those resistance, resistance sector that we have seen in the Nigerian economy. Despite the various challenges, they still turn in good profit, they still turn in good earnings, they still pay good dividend to their shareholders. Recently, most of them have even hiked their interim dividend by almost 45% to their shareholders. So definitely you will see that the banks have really lived up to the expectation whether in tier one or tier two. But like I said, the challenge with Nigerian banks will not only be that of liquidity going to recapitalization, like you said in your report. Recapitalization might not be a problem for the Nigerian banks. And I see it, the words I will have when you see re-strategizing, like I said, incentive, whereby you might begin to see merger. And you see correlation whereby you begin to see maybe some big banks outside the show of this country begin to take stake in the tier one bank also. So all this will come to play. But as it stands, I think by virtue of the results, you know that the Nigerian banks are stronger. And if you do a stress test today, and like the CBN governor, I believe too, that the banks are not having an financial crisis. But they are looking towards building a one trillion dollar economy with the thing that the bank should play a significant role in building that. If they have to do that, then their liquidity must be high, especially the exchange rate as it stands now. All right, let me share more reactions that I got with you. Some have said that the CBN can use a potential guidelines to strengthen tiered arrangement. They said that the affected bank can also use differential cash reserve requirement and differential participation in the forex market for well-capitalized banks are some of the incentives. Do you foresee challenges for some banks and what direct impact would it put on the capital market? Well, for the capital market, the capital market would be the most beneficial if this steam come to true like what you saw in 2004. Driving that when they came to the recapitalization actually brought a lot of Nigerians into the capital market. And that could also be great, especially bringing young Nigerians into the capital market. If this policy starts and most of the bank have to recapitalize. In terms of the policy statement where some analysts are saying about using your cash reserve system, using your prescription in the FX market, assessing the CBN, Windows and all that could be some of the cultural policies to use to incentive for these banks. I don't think that would be a challenge, but like I said, it could be something that the CBN are working at. But for where I'm standing now, I don't think it would be any challenge, especially even for the tier two bank to raise capital to the tune that what the CBN, when I think the coming days, the discussion will be how to know what the CBN, what it's going to be the minimal capital requirement of the Nigerian banks and not to forget that most of the tier one banks, even some tier two bank are now having subsidiary outside the show of this country. And not just in this country, in larger financial cities of the world like London, like France, like also in New York. And so they are really expanding and they are playing their role in the global economy. So that's why I think it will not be a challenge for them to attract the kind of capital they need to pay the other capital base, especially with the kind of opportunity that are much in Nigeria. Before we move into some of the things that the CBN is talking about or is actually planning, you talked about banks branching out to the outside the shows of the country, New York, London and all of that. In recent times, we've been seeing lots of banks forming parent companies and all of that. I just want to get your reactions concerning that. Justin, the world has gone to become a one shop business and they call it one shop place. So the banks are not going to be left out, especially with the advent of the film tech side of the economy. So what the banks are doing now is diversifying to holding structures like it's done globally. JPMorgan has been holding structure. So most of these banks have holding structure and so Nigerian banks are beginning to take opportunity of that also to build holding structure. And I think it's good. But again, my challenge is also in the area of monitoring. But thank God what the CBN have done, the CBN is not interested in what they are doing in the holding structure because the banks have become parts of the holding structure. But the CBN is curious about what the banks are bringing into the holding structure finance and that is key for me. The CBN have refused, even after the bank has said, we are not holding complex. The CBN is still having a grip on the banking sectors. They have to edit, they have to check their books. They have to know what they are saying is right. So I think it's a good development in the long run because that's what the best global practice is. Every bank wants to become a one shop center and I think Nigerian banks should not be left out. And that is why we think there's so much opportunities in if the bank will have to recapitalize. The challenge of opportunity they will drive, especially from the foreign exchange market, will be very huge because we have begun to see a lot of foreign investors coming in and wanting to stick a stake in this bank, especially in the holding companies like the FIMTech, the FIMTech companies who want to come here, especially because of also a larger population of youths and also the lack of penetration that we have in financial inclusion. So they come in bringing the products, you could begin to see a lot of penetration. So there's a huge opportunity in that space and I think that's why the banks don't want to be left out. That's why they are forming holding companies. All right, just before we run off now, the central bank of Nigeria says it will freeze account without a bank verification number, BVN or National Identification Number, NIN from April 2024. According to the bank, a BVN or NIN verification will be conducted shortly. And adding that the move is part of its efforts to promote financial system stability and strengthen the more your customer KYC procedures in financial institution. What are your thoughts? Because right now, everyone would have been linked to the BVN platform as it is. Yeah, according to the same thing, I think we have about 45 million Nigerians without BVN and that was short. I'm looking at it, some of these Nigerians might be Nigerian, the diasporas since the last time they opened an account in Nigeria, they've not been here. I also could be as a result of passing on, maybe some of them are late now, we don't have a better register to determine. I don't think any banks again are doing business in Nigeria. You can transact any account in Nigeria without a BVN, especially when you want to transact. To say you own an account, yes, definitely when you own an account, there's no link to BVN. When you get to the bank, the bank will make sure they link that account to the BVN before you have any transaction. I think the major problem is from the wallet area, the kind of wallet corner. This is how to do film tech. Most of them have not been able to transit that section of linking their customers with the BVN. Even in the Kejia Electricity Assistance now, I've already linked their customers with the BVN, and I've linked them again to their paid meter. Definitely, I'm surprised that the CBN is trying to realize sanctions and measures. I think, more or less, most of those accounts could be what I just said. What we need to do is to reach out to some of these accounts, and as I know, they are testing what current status are in those accounts. That could be what we should do, then just putting the whole banking sector into a panic mode. Thank you so much, Mokta. Thanks for all of the useful insights that you have shared on the show for today. We do appreciate them. Thank you, Justin, for having me. Good morning. All right, and that's the size of the show for today. I am Justin. Akadene Business Insights will return to your screen at the same time. Many thanks for being there. Bye for now.