Economist lauds planned banks recapitalisation

An economist, Prof. Uche Uwaleke, says the idea of recapitalizing banks is a welcome one.

Uwaleke, President, Association of Capital Market Academics of Nigeria, said this in an interview with the newsmen on Saturday.

He said, “It goes without saying that capital is needed to finance big-ticket projects, especially when the government is targeting a one trillion dollar economy in a few years’ time.

“Also, if the experience of 2005 is any guide, the recapitalisation exercise is likely to rejuvenate the stock market.

“But I think the strategy should be somewhat different from the approach adopted in 2005. It should be more about incentives than coercion.

“Some DMBs (especially many in the FUGAZ category) are already making efforts to increase their capital base.”

He said that the CBN could use prudential guidelines to strengthen the present tiered arrangements.

Uwaleke said the use of the CAR (the ratio of a bank’s capital to risk-weighted assets) was a good example.

“The apex bank can also use differential cash reserve requirements as well as preferential participation in the forex market for well-capitalized banks as some of the incentives.

“For whatever it is worth, smaller banks playing at the regional level should not be regulated out of existence,” he said.

The CBN had said that it was planning to implement a new round of banking recapitalization for the Deposit Money Banks to raise additional capital to play in the anticipated one trillion dollar economy by 2030.