 Thank you for staying with us. You're still watching the breakfast on plus TV Africa. It's time for our hot topic And this one says expedite action on Recapitalization CBN tells of banks now joining me to have a conversation is belong or Luja days a public affairs analyst. Good morning Thank you for joining us Yeah, thank you. Good morning. Nice to be on the program. Lovely. Okay, so the CBN governor Caruso had come out to talk about recapitalization on banks now If we look at history the last time we had this recapitalization was in 2005 when Charles Saludo was still the governor of CBN at the time and it moved from 2 billion to 25 billion So that's just for some precedents But now we're seeing the current governor of the CBN talking about this and saying we need to expedite action on Recapitalization, what do you think about this? And what do you think the impact on banks will be if this goes on? okay, I Like the information the background information you provide. Yeah, so we move from 2 billion to 25 billion as a minimum capital for a national license of As at the time when we moved to 25 billion that 25 billion was about 200 million dollars Today that same 25 billion It's probably about 50 billion dollars So it has gone from that 200 million that I was to about 50 million dollars. So something has happened to what used to be What were all considered as an adequate capital for a national license That value has eroded over the years by virtue of the depreciation of the Nair Yeah, so if we want the banking as a system the banking system to be able to deliver on The oh, we want to be a one trillion economy by this year and all those kind of stuff It is right about time. We consider recapitalization especially With some of the banks that we currently have You Okay, so what's what's the best way because I know that inflation has taken a toll on the economy And just like you rightly said the value of that 25 billion is not the same as it was in dollars as of today So what are the measures that could actually even help these banks for the recapitalization? because I know it's not easy to go from 2 billion to 25 billion and whatever the The rates is going to be at the moment We don't know what's going to be but how can what are the measures or policies that would actually even help these banks? You know people think because some of the economy circumstances may be The timing might not be right, but that is not true. There is so much money in this economy If any of them should come to the market They will get people who put money in there. So They could actually Approach the capital market to raise money and they will get investors who bring in money and buy the shares And they can show of the capital of those facts It's it's been a long time and this will also help even the capital market It will create a lot of buzz in the in the capital market We will just we'll just be taking back So the years of soludo when a lot of capitalization of this one up when you create that the The NGX the equity market generally will receive a lot of activities and it's good for the economy that that should happen Now there are also among these banks some of them already have very good Reserves they have the shareholders fund is already very robust All they will need to do is to restructure that shareholder area To meet whatever is the new threshold that they are desired So if you look at some shareholders fund on some of the banks, it's already I know a bank That is about 1.5 trillion error. Yeah, that's so it's not talking that kind of a bank It's not talking about 25 billion or 15 million It is already at 1.5 trillion in child that's so only require only will require for that kind of a bank Is to move things around and capitalized maybe Want to go? I want to issue Bonus shares from your reserves and all those kind of things, but it's doable and it is in the interest of Not just the banking system, but also the economy to create activities around fundraising by buy bands in the capital market So I mean you've spoken about a bank that has you know trillions But I'm sure there's some that maybe they might not be able to meet that and I remember during the time of soludo You saw a lot of Merges and acquisition happen. So is this something that might happen whereby it's going to be the top players That will be here and then some others who cannot meet up would just have to leave Well, that's an extreme situation What that soludo event did was to create a healthier environment. So today we have healthier banks than what used to be All this non-performing loan ratio is still reasonably low And most of the banks are doing very well. That is the reality of what we have right now however In an extreme case in with their banks I'm able to meet a new threshold definitely the room for matters and acquisition will always be there But in my observation of the numbers of the banks today Most of them if they come to the market, they will be able to raise fund and show up It is something that will be in the long interest Like like you rightly observed those who are already those banks that are already big and have the shareholders fund I'm might not panic, but there are smaller ones who would definitely need to raise those capital Can those capital be raised under the prevailing condition? My answer will be yes because While there might be the quality and economic hardship Generally, there is still a lot of money in the economy and when the investment Opportunities come to move to those investments. So since we're talking about raising capital What are some strategies that these banks can just you know, implore to to ensure that they meet the targets Whatever that target is going to be I think the I think the banks need to start looking At their own books Before those thresholds are set. Yes I'm beginning to reassess and take steps that will position them to be able to Approach the market for fundraising They also do not have to necessarily I mean they could do private placements You could do, you know, what is the important is that they have to start considering What options are available for them to show up their capital and begin to prepare their institution towards Approaching those options that will work that they believe will work for them. Of course, the capital market is always there You want to come to it? You can come to capital if you don't want to do that want to do something in the private placement space You can also do that. What is important is to be able to raise So I expect that most of them are already looking at what they're going to do because it appears Mr. Cadoso is very serious about recapitalization Banks So I like to know what can be what can pose as a challenge, you know for this especially when a threshold is being set More can pose as a threat as a challenge for these banks And how would it even affect, you know, the the the banks with their customers as well because I mean if this happened for instance during the time of Soludo you were hearing people saying some banks fold it up and their monies were stuck So how would these even affect the customers in this case? They will not it's it's not something that will have any negative effect on the customers As I said to her What is it's a different story when banks liquidate from when banks merge Most of all we had during the soludo exercise when mergers and acquisitions on bigger banks swallowed up the smaller ones to become you know To meet the threshold that was set In in the course of that depositors monies were safe In this particular instance too the threat there are no threats to depositors Rather what we will have Would be banks that have more capital to deploy banks with better capacity to On the expectation of this economy As according to the trajectory that the government is is looking at and and what the primary sector is also looking at We must be able to fund the economy and You know Looking outside there waiting on international banks to come and do this and do that for us It's not a it's not a sustainable Approach to funding an economy because they will choose and pick what they want to fund But when we have our own banks with internal capacity to provide us funding Then we will be the one choosing and picking what we want to for example You might have a lot of international bank who are saying I don't want to do a land gas because I think fossil fuel are going out of boat But if our own banks Internally have the capacity then the problem will fund those projects I would have to be waiting On on international people because we do not have the capacity So it's it's a capacity enhancing thing. It is positive and it is doable Okay, so how do you foresee the um competitive landscape, you know within the banking sector, especially when there's whole Recap capitalization mandate is you know being given. What's going to be the competitive landscape for all of the banks? Well, um, even as we are we have the banks that you call the uh tier one bank Everything is You know, you you know where you belong tier one tier two guys, even tier three There are also some banks that are living on the fringes. I deliberately would not mention it Baby is an opportunity for those banks to recapitalize or get absorbed Into the bigger one and you know Size or scale is always uh an advantage and people the big banks will throw their weight around When it comes to uh capacity, but you cannot you will also within that same industry Have smaller banks who are more nimble Uh, they are not they are they don't have the the huge capacity of those large banks But they have chosen certain niche Market and their nimble their approval process is easier their Processes are simpler and they are able to do things faster than some of the behemoths so People will pick and choose their niche Based on your or your on your computer's and your capacity and deploy so the competitive landscape, of course We change because you have the domineering big tier one banks who are always there for them There will always be room for the mid tier And then the smaller players to do what they know how to do you can choose the market where you Focus and I'm able to uh make money as a bank Okay, so in choosing those markets, um knowing where wherever you are whether you're in the tier one tier two tier three um For the implementation the successful implementation of this especially when the threshold is set What role does regulatory bodies have to play in this to ensure that Everything is by the books and how it's supposed to be Well, um, we've been here before. Um, there is institutional memory of how we have done it in the past So the regulators of course typically Uh, um might start with moral situation in which we're they're not even setting Targets they're not saying this is the minimum this and this is the target date when this must happen So they're just saying look you guys need to do this and they expect that um the institutions within the system Will begin to move along the line of this moral situation The next step of course is to say, okay We're not getting enough traction from just encouraging you to do this recapitalization Therefore, we are setting thresholds and we are setting target date within which this must happen So once that is rolled out, uh, then activity gets in top gear Um, nobody want to be found on the other side of the regulator And that is when we begin to see banks moves actively will begin to see Some of them come into the capital market Or while we are still at that position where these Targets and dates and threshold have not been set It is the right time for the bank to start their own internal preparation Look at your books. Look at your balance sheets beside where you think you want to go What kind of fund you want to raise, you know Most of them will be uh equity or tier one capital Um, and then decide how exactly you want to raise this fund You have some uh major guys who want to call in to just bring some money on the private businessman business Are you approaching the market? For for fund are you coming to the capital market? Um, so those those are the kind of things that will start to happen to prepare the ground While the moral situation Uh, uh, still range supreme but over time it will move beyond moral situation There will be a legislative prescription exact material prescription as to date as to Minimum capital and and all those things and that that would be where we begin to see their activities All right, so um The cb and gov know yemi kare so, you know spoke about servicing the one trillion You know economy and i'm sure that's the reason why he has spoken about expediting Excuse me expediting action on the recapitalization But in your opinion, um, what long-term benefits like potential long-term benefits? Do you think um, this would have especially with our economy? Infrastructure is one, um The the financial system must be able to finance our own infrastructure At least be a significant contributor to the financing of our infrastructure So you you look at what we have done in the past Using other people's fund what bank ifc? China exene All those foreign fund the same look yes foreign fund is good Uh, they could be much cheaper than what we are we have enough But that we also need our domestic banks to develop that capacity to contribute a lot more To infrastructure financing infrastructure development in this economy. That is one area where we will benefit tremendously Uh, then when you talk of industrialization Um mega industries require a lot of money and anywhere you look at those kind of financing Uh, you might pick say dangote refinery. That is a huge huge project Now the capacity to finance more of such project if there are to be Project of the quantum of dangote refinery if ten of them were to come on board today Are we going to be able to put together the funding? Those are the kind of questions that we must be asking and those are the kind of answers that they Enhanced capacity of the banking system will be able to provide answers to All right So I guess in your own opinion, this is a good idea The banks need to start to look into their books and you know, just get ready for the recapitalization I think it's a fantastic idea Let's let's start preparing the market is waiting where you want to raise fund come to the market capital market Generate those on the capital market. It is also very good for the economy. I just bring money to the capital market there's a lot of activities going on there and then There's a trickle down effect of those activities on the economy. In fact, it will even Be a bit of interest to foreign investors portfolio investors who will bring the money Because of that buzz that is being created on the on the capital in the capital market Exactly what I wanted to ask because my question next was going to be would foreign investors be able to come into Our country. I know the president has been moving around looking for foreign investors coming to Nigeria But would this actually pose as a good opportunity for them to come in and then also for the common man We know if inflation is that all-time high. Does this also affect that? Would that's you know help the economy whereby inflation is going to be reduced? Okay, um, it's it's it's a bit complex. But then um, what we have seen for example with the prevailing Monetary policies is how it has affected the dollar Someone was offering dollar to me yesterday at 1380 I um, I was told that it's traded below that In some of the markets yesterday in Nigeria when I think about the fact that that same dollar was 1900 at some point A few weeks ago. Um, it shows we are moving We are we are taking certain right steps in the right direction Now the the lagging effect of those actions will start to come in Over over the next few months you see when The manufacturers for example even importers Are making new orders They're going to be now be making it under a much reduced FX FX exchange rate And that would dovetail into reduced prices and reduced inflation What I however do not want us to lose sight of is that the problem is not just about monetary policy We would like to see this being complimented on the fiscal side of things if we're going to deal sustainably With the issue of inflation in this country the monetary policy will do its part Well, you have to be complimented by actions Interventions from the fiscal side of things. Hopefully these two side of things work together and we can begin to feel the impact On the political area by the common man Well, that's the prayer. We hope that the common man can also Benefit from this. I mean it's a good idea If it's such a fantastic idea like you've said that hopefully trickles down and everybody is happy at the end of the day We want to say thank you for coming. It was lovely having a conversation with you and you know, just sharing your valuable contributions. Thank you so much Yeah, thanks for having me. Have a wonderful day. You too Right, I've been speaking with Bolao Lodgede. He's a public affairs analyst and we've been talking on the topic Where the CBN has well told banks that they need to expedite action on a recapitalization We'll go on a short break and when we return we'll be looking at our next hot topic. Please stay with us