Bank Recapitalisation is a good programme that will boost the Capital Market – Senator Osita Izunaso

The new minimum capital requirements for banks operating in Nigeria, with the objective of ensuring a more safe, sound and stable banking ststem is a welcome development that will help strengthen the country’s financial system in general.

This new Capital requirement is justified by the negative impact of naira depreciation on the capital base of banks over the years especially following the recent unification of exchange rates.

The adoption of tiered minimum capital requirements in respect of international, national and regional authorization is commendable unlike the uniform capital base of N25 billion which applied in the 2005 banking recapitalisation exercise.

In view of the strong link between the money and capital markets in Nigeria with most banks quoted on the Nigerian Exchange, I have no doubt that the successful implementation of this exercise will have salutary impact on the capital market.

I commend the CBN for the emphasis placed on injection of fresh capital for the purpose of meeting the minimum capital requirements as opposed to mere reliance on revenue reserves by the banks.

Against the backdrop of the requirement to use only paid-up share capital and share premium for recapitalisation purposes, it is expected that most of the banks will approach the Stock market to raise additional funds either through an offer for subscription or rights issue.

This has the potential to deepen the market, increase equities market capitalization as well as serve as a veritable source of Foreign Direct Investment with positive multiplier effects on the economy.

It is important to point out that this recapitalisation programme comes with unique risks especially when banks opt for the private placement route. The CBN should intensify efforts to ensure that laundered funds are not used to recapitalise the banks and that only fit and proper persons end up as significant shareholders. This risk is minimized when banks go through the stock market which offers a screening layer in addition to that carried out by the CBN.

I commend the CBN for this recapitalisation programme and assure the apex Bank and all stakeholders of the support of the Senate Committee on Capital Market in ensuring its successful implementation.

Distinguished Senator Osita Izunaso is the Chairman Senate Committee on Capital Market and Institutions