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The CBN is planning a new round of bank recapitalization

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The CBN is planning a new round of bank recapitalization

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The Central Bank of Nigeria (CBN) has announced plans for a new round of banking recapitalization for Deposit Money Banks (DMBs).Mr Olayemi Cardoso, Governor of the Central Bank of Nigeria (CBN), made the announcement during the 58th Annual Bankers’ Dinner hosted by the Chartered Institute of Bankers of Nigeria (CIBN) on Friday night in Lagos.

According to the News Agency of Nigeria (NAN), the projected recapitalisation means that DMBs will need to raise extra capital to satisfy the demands of the Nigerian economy.

Cardoso observed that in his Policy Advisory Council report on the national economy, President Bola Ahmed Tinubu set an ambitious objective of generating a GDP of one trillion dollars by 2030, with clearly defined priority areas and tactics.

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According to him, it is critical that banks have a part in the expected one trillion dollar economy by 2030.

Cardoso stated that given the significant developmental role that the central bank would like the banks to play over the next seven years, it had become critical to demand their recapitalisation.

Cardoso stated that in order to meet the aim, Nigeria must experience more fast and inclusive economic growth.

“The administration has already begun this journey with fiscal reforms, such as the elimination of gasoline subsidies and the unification of the foreign exchange market rate.”

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“Given the policy imperatives and projected economic growth, it is critical that we assess the capacity of our banking industry to serve the larger economy.”

“It is not just about the current stability of the financial system, as we have already established that the current assessment indicates stability.”

“However, we must ask ourselves: Will Nigerian banks have enough capital relative to the financial system’s needs in the near future to service a $1.0 trillion economy?” “Therefore, we must make difficult decisions regarding capital adequacy,” in my opinion. We would direct banks to enhance their capital as a starting step,” he said.

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In addition, the CBN governor announced the clearance of another round of Open Market Operations (OMOs) to remove excess liquidity from the banking sector.

OMOs are the primary monetary policy instrument, through which the central bank buys and sells assets in open markets with financial institutions, altering the amount of money in circulation and/or interest rates.

“An OMO auction was recently held with a stop rate of 17.5% for the one-year tenor, attracting oversubscription of N350 billion,” Cardoso said.

“Another round of OMO has been approved to reduce excess liquidity even further.”

“Offering the investing public N108.1 billion in Treasury Bills with three tenors, which can help reduce liquidity in the banking system and support government fundraising.”

Cardoso stated that the central bank’s monetary policy tools would be used to maintain inflation low and stable.

“The Central Bank of Nigeria is committed to achieving monetary and price stability,” he stated. This is not only a technological goal; it has real-world ramifications for our residents’ well-being.

“We can ensure a more stable exchange rate, control inflation, and create an enabling environment for businesses and individuals to thrive through targeted policies, transparent market operations, and coordination between monetary and fiscal authorities.”

He stated that the top bank has taken initiatives to improve the effectiveness of its monetary policy tools as well as to strengthen the transmission mechanism so that its policy decisions had a bigger impact on the economy.

Cardoso went on to say that the monetary policy committee’s ability to impact the economy through its choices had been undermined since the channels through which monetary policy was disseminated had been disrupted.

The CBN governor stated that the top bank intends to alter the country’s foreign exchange restrictions by adopting new guidelines and legislation.

Before making any final decisions, he stressed that banks and foreign exchange firms would be consulted. Unless we take action, the answer is “No!”

 

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