Proposed Recapitalisation of Banks, a catalyst for Growth of the Nigeria Economy by Godwin Akhimie.

The Nigeria banking history can be categorized into three phases before 1986. We had the Era of laissez - faire banking (1894- 1952), secondly, the era of limited banking regulations (1952-1958), and the era of intensive regulations. During the first phase, the banking system was virtually unregulated with absence of appropriate banking legislations. Banking was exclusively monopolised by the expatriate banks and merchants. Alleged discrimination against Nigerians by these banks led to the establishment of indigenous banks. However, in the absence of banking laws, many of these banks failed due to weak capital base, poor management and fraudulent practices.

Specifically, we had the African banking corporation in 1892 by the colonial masters, while the first indigenous bank was the defunct National bank of Nigeria.
The era of limited regulation was ushered in with the enactment of Nigeria banking ordinance in 1952. For the first time, the ordinance stated the standard and procedure for the conduct of banking business by prescribing the mandatory minimum capital requirement for banks and introduced regulations to check bank failures. Many of the indigenous banks failed because of their inability to meet requirements most especially capital base.

The third era began with the enactment of the central bank of Nigeria act of 1958 which proposed a legal framework and backing to it establishment with powers to promote and integrate the Nation’s financial system, the Central bank was able to ensure the stability of the banking system through series of regulatory measures. Another legislation was in 1968 companies Act which required foreign based banks operating in Nigeria to be incorporated in Nigeria. Also, the banking act of 1969 provided for the regulation and control of the monetary and financial system. It made provision for the granting of licenses of banks and regulating the activities of licensed banks.

In 1986 came the structural adjustment programme (SAP), the previous banking legislation was replaced with central bank of Nigeria decree No 24 and banks and other financial institutions decree No 25 of 1991. With this decree, the Central bank was solely responsible for regulating banks and related financial services in Nigeria. The central bank had powers to set guidelines for any person or institution that engages in the provision of financial services.

The Era of Structural adjustment programme ( SAP) encouraged the proliferation of banks, competitions and offering variety of services to the banking public. More deposits were attracted as a result of mop - up of liquidity and deregulation of interest rates. The improved regulation led to enhanced computerisation of bank branches and deployment of bank staff. It made the system to be more market oriented.
After this periods, so many fraudulent practices ,insider abuse, computer aided fraud were uncovered which led to the promulgation of failed bank tribunal by the Abacha military administration. This period led to so many bank owners and executives going to jail and their assets confiscated for stealing from depositors funds in banks.

Post SAP era witnessed stiff competition amongst the banks and bank distress was high which led to economic downtown as so many banks collapsed and couldn't lend to the real sector to lift the economy. The number of banks between 1986 - 1992 increased from 45 - 120. The concept of total quality of management was introduced to re- orientate the way bank services was delivered to customers.

Competition was encouraged in the banking industry to showcase the area of strength of each bank in line with their corporate vision. This period didn't go without distress in the banking industry because many banks went under due to weak capital base as they were unable to recapitalise after the directors of the banks had tampered with their shareholder’s funds through granting of loans which was internal credit abuse and against corporate governance. Banks like commerce bank, society general bank and Savannah bank went underground.

In 2022, Professor Charles Soludo, the then central bank governor thoroughly diagnosed the economic situation of Nigeria and identified the boom and burst cycle in the banking industry as responsible for the bad economy of Nigeria as

they were not well capitalised to fund big bankable proposals from big corporations that can uplift the Nigeria fledging economy. He equally identified the banking industry as a haven for financial fraud because of access to public sector funds. Many banks compromised public sector managers to get funds and in turn use the funds to trade in foreign exchange market, invest in treasury bills and engage in direct importation. He further identified over #500b outside the banking industry as a result of the failure of banks. The people lost confidence in the banks are were keeping their money at homes.

Banks were not giving loans to the real sector to lift the economy. They were only investing in treasury bills and engaging in round tripping in the foreign exchange market which perplexed the economy of Nigeria.

Professor Charles Soludo, the then central bank governor increased the capital base of banks to #25 billion for any bank to operate in Nigeria, he was of the opinion that no bank in Nigeria could finance a $500 million investment unlike its counterparts in South Africa.

He opined that the new capitalisation figure was just 0.25% of the GDP of Nigeria compared to a bank in Japan with capitalisation of 30% of it GDP and that with #25 billion, it was still less than 50% of the least capitalised bank in Malaysia. Many banks that couldn't meet the new capital base merged with others and that reduced the number of banks to 24 with minimum capital base of #25billion. This awakened the confidence of Nigeria public in the banking system.

The recapitalisation of the banking industry saw improvement in the value of shares and stocks of the banks traded on the floor of the Nigeria stock exchange as their profits improved and the Nigeria economy started to blossom as banks increased their lending to different sectors of the economy.

The era of sanusi lamido sanusi as the central bank governor ushered in a new categorisation of banks most especially their paid up capital. The banks were categorised into three with different paid up capital. A bank that want to operate in a region will pay #10 billion for a license. A bank that want to operate nationally, i.e across Nigeria will pay #25b for license. A bank that want to operate across Nigeria and international will pay #50b for license.

Over the years, Nigeria banks are having inroads into many Africa countries by having subsidiaries and acquiring many banks because of their strong capital base. Seven banks boast of #10trillion capital base. Capital base simply means the number of shareholders of the banks and the value of their shares in the stock exchange market.

The era of Godwin Emefiele, the immediate past Governor of the central bank witnessed boom and high profit making by banks in Nigeria as he deployed sound monetary policy for the banks to leverage on and improved their profitability. Under him, banks increased their investments outlets and loan portfolio to the real sector of the economy which increased Nigeria's economy to $445b, the largest in Africa. The (FUGAZ) banks namely FBN, UBA, GTB, Access and Zenith shares are the most sought after as their profitability rises.

The banks in Nigeria are collaborating with AFREXIM to syndicate loans which has never happened in the history of Nigeria.

The planned recapitalization of the banks by the new central bank governor is a good decision to get Nigeria to $1 trillion economy. However, it must be carefully implemented so as not to cause massive unemployment that may worsen the unemployment rate in Nigeria. Nigeria economy needs a lift and only a sound and recapitalised banking industry can propel it. The banks are not doing enough in lending to the real sector of the economy. They are accused of killing businesses with obnoxious interest rates and other ancillary charges which is causing high non-performing loans in the books of the banks. Banks should be encouraged to channel 70% of their funds to the manufacturing sector to get many moribund industries back to life so as to solve the problem of rising unemployment.
The banks should equally lend heavily to the energy sector, real estate and mechanised agriculture, iron and steel. With this, Nigeria can attain the target of $1trillion economy in 7yrs.