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My take is that the central bank should not come up with a one side fit all capital requirement.The capital requirement the CBN should come up with should be risk-based. We have moved beyond a one side fit all capital requirement, thus riskbased capitalis
not operationally effective presently.
What kind of investment and trade policies can be enforced to ensure that we encourage local manufacturing and local production?
The trade policy is the responsibility of the federal government, while the CBN is responsible for the monetary policy. But let us look at what sort of trade policies should the federal government come up with that would encourage export. We have to start from the foundation which is the baseline and that is only crude oil as at today. Our annual export of non-crude oil products presently is just $4 billion. So our export in terms of non-oil export is very low. Thus, the first thing is to look into how we can grow the value chain of what we produce locally so they meet the standards for exportation. When we are able to produce products that are being demanded for outside the country, and at the same time the cost of production of those products are competitive, that is when you can talk of having a trade policy that creates a barrier that does not inhibit improvement of quality and also a trade policy that would ensure your products are not too expensive because you have to use our exchange rate policies to manage the competiveness of our products in the foreign market.
What are your thoughts on the re capitalisation of the banks?
My take is that the central bank should not come up with a one side fit all capital requirement. The capital requirement the CBN should come up with should be risk-based. We have moved beyond a one side fit all capital requirement, thus risk-based capitalisation requirement is what we should be going for. If you look at what we have on ground today, we have four tiers of banks in Nigeria. We have the merchant banks that require capitalisation of N10 billion; we have the commercial banks that have N15 billion capital requirement and capital ratio of 10 per cent, and we have the national banks that require N25 billion and capital adequacy ratio of 10 per cent. In addition, we have the international banks, that is Nigerian banks that are operating outside the country, they require N100 billion capital requirement and 15 per cent capital adequacy ratio. Beyond all these we have what the CBN categories as the tier one banks which require capital adequacy ratio of 16 per cent which means the central bank has also redefined some level of capital requirement based on the risk taken. If you look at the shareholders of Nigerian banks the first six banks which are tier one banks. So, I think the CBN should come up with a guideline that requires banks to carry the capital that would meet their risk operations otherwise we would have a capital base that is not profitable to investors, because they would look at return on equity. I cannot put in money when the return on equity would decrease from the current fifteen percent to five percent.
Do you think the stock market is strong enough to absolve this recapitalisation or we are likely to see mergers and acquisitions?
If you look at the capital market, if you bring in instruments in the markets that have very good yield low risk, the market would mobilise funds for it, like what happened in the case of MTN. So, basically there must be value. Good instruments would attract investment anywhere in the world.
According to the proposal, the aim is to position Nigerian banks into the top five hundred bank. But according to reports, four Nigerian banks have already cracked the top five hundred, namely, First Bank, UBA and Zenith, since that has been achieved already what else will be the pimpact of bank recapitalisation?
What the CBN is looking at is to maintain financial services in terms of sustainability. What the CBN is trying to do is to find away to resolve any deficiency in the banks.