Bank Recapitalisation To Boost Nigerian Capital Market

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New capital requirements for banks are expected to stimulate the Nigerian capital market, according to Sam Onukwue, Chairman of the Association of Securities Dealing Houses of Nigeria (ASHON).

 

In light of the dearth of fresh issues, Onukwue noted that the market has been slow in recent years. Banks must increase their capital base to N200 Billion to N500 Billion, depending on their level of authorisation, according to a March 28 announcement from the Central Bank of Nigeria (CBN).

 

Banks have been given two years to comply with these new requirements, which are intended to enhance their global competitiveness and meet the needs of the African Continental Free Trade Area.

 

Onukwue praised the CBN’s initiative, noting that the increased capital is necessary given the rising risks banks face amid challenging macroeconomic conditions.

 

He stated that a stronger capital base would not only help banks absorb unexpected losses but also enable them to support Nigeria’s goal of a $1 Trillion economy within the next seven to eight years.

 

“The Central Bank of Nigeria has made a wise decision if our banks are to compete globally and within the African Continental Free Trade Area,” Onukwue said.

 

He added that current inflation and exchange rate issues make it difficult for banks to operate under existing capital thresholds.

 

Onukwue also noted that the primary market has been inactive due to economic slowdowns and companies’ fears of under-subscription.

 

Many companies have hesitated to launch initial public offerings (IPOs) because of past failures to list shares on the secondary market after raising capital.

 

However, Onukwue believes that the new capital requirements for banks will revitalise activity in the primary market.

 

He commended the Securities and Exchange Commission (SEC) for introducing new rules to prevent abuses in fund-raising, including stringent regulations and hefty fines for non-compliance, to protect investors.

 

The SEC plans to release a framework to guide the capital market during the banks’ recapitalisation process, with acting Director General Emomotimi Agama stating that the commission will engage with various market sectors to ensure all issues are addressed in the best interest of the market.

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