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Bank recapitalisation will worsen unemployment– Analysts

Bank recapitalisation will worsen unemployment– Analysts %Post Title

Financial experts have projected that the ongoing bank recapitalisation exercise would worsen unemployment in the country.

In separate chats with The PUNCH, the experts also noted the recapitalisation exercise would force some banks to merge, causing a loss of jobs.

A development economist at Lotus Beta Analytics, Shadrach Israel, commended the Central Bank of Nigeria for mandating banks to revamp their capital base.

However, he noted that the recapitalisation exercise would lead to bank mergers, and smaller lenders may go out of business, resulting in the displacement of their workforce.

“Based on the monetary policy, the recapitalisation move by the CBN is a good decision. First of all, the essence of the merger is to strengthen the financial system to ensure we have a viable banking system. “Just like before 2004, when we had about 89 banks and a lot of bank failures. One way to strengthen the banks is recapitalisation.

“Of course, the economy has changed since 2004. The GDP growth rate has also doubled. There is room for recapitalisation at intervals. The current move is long overdue, though it has both advantages and disadvantages.

“For the disadvantage side, we are already looking at a situation where many banks will not be able to survive it. From  N25bn to N500bn; we are going to see a lot of mergers. Any bank that must survive will have to agree to a merger,” he stated.

According to Israel, for international regional banks, it is not going to be so difficult, but national and other smaller banks would struggle to meet the new capital thresholds.

He opined that six to seven banks may be forced to merge because of the volume of capital involved.

He stated that the apex bank should have considered some other amount lower than N500bn to enable the banks to meet up with the demands.

“The current amount poses a great financial gap for the banks. I feel like the rate of increase is so high. The apex bank should have tested some amount less than N500bn and seen how the economy reacted.

“If it means having like four to five years to recapitalise instead of the two years notice. The disadvantage is that it may lead to unemployment and the closing of the banks unless they opt to merge. If the merger does not work, the banks may close down,” he enunciated.

He argued that the recapitalisation programme may reduce the number of banks in the country to a single digit.

“We currently have about 25 to 30 banks and I think new ones have joined them. It is most likely that banks in Nigeria will reduce to a single digit. I’m hearing now that even the top six banks in the country may not be able to meet up with the requirement. Imagine if the top banks are merging, what happens to the smaller banks? “We are only hoping that the advantages will outweigh the disadvantages.

“I feel that the CBN is trying to fight the rot in the system. Nigeria and Kenya seem to have the most functional banking systems in Africa, but the governor felt there were lots of rots in the system, which he could regulate with the big stick.

The apex bank had on Thursday announced a 24-month recapitalisation programme for lenders in the country.

The new CBN guidelines were disclosed in a statement signed by its acting Director of, Corporate Communications,  Sidi Ali.

She said the apex bank had directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn.

According to the acting CBN director, commercial banks with national licences must meet a N200bn threshold, while those with regional authorisation are expected to achieve a N50bn capital floor.

Also, non-interest banks with national and regional authorisations will need to increase their capital to N20bn and N10bn, respectively.

Also, another economist with Sankore Investment Limited, Jonathan Thomas, said the apex bank’s move was necessary at the time to contract the economy due to the high inflation rate.

He noted that although the policy may adversely affect some banks with less capital and even result in unemployment, it would help to stabilise the economy.

“One of the reasons why the CBN will consider increasing capital base requirement for banks is majorly to reduce the cash in circulation. The current level of inflation is an indication that we have so much money in circulation. As the definition goes, inflation is too much money chasing too few goods.

“The CBN’s policy is targeted at contracting the economy. One of the contractionary monetary policies is to increase the capital base of commercial banks. Once the capital base is increased, the liquidity will reduce, thereby, decreasing aggregate demand and contrasting other economic variables.

“However, there are some positive sides to it because inflation has a positive relationship with economic growth. There is a level of inflation that must exist in the economy at least two per cent of inflation is healthy in any economy but any level of inflation higher than that is abnormal,” Thomas explained.

He suggested that the CBN may have to consider some reverse measures to stabilise the economy.

“This policy will shoot down the inflation rate and economic growth will reduce, thus increasing unemployment.

“The spillover effect on the commercial bank is grievous. Some of the banks may go out of business and their staff will lose their job,” he added.(Punch)

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