Stakeholders Proffer Way Forward for Planned Banking Sector Recapitalisation

•Senate C’ttee advises against allowing laundered money for exercise

Ndubuisi Francis in Abuja

Key stakeholders in the financial system, the National Assembly and the academia, among others, at the weekend proffered the way forward for the ongoing banking sector recapitalisation, saying it would support the realisation of Nigeria’s goal of attaining a $1 trillion-size economy by 2030.

The stakeholders, who spoke at a symposium on “Banking Sector Recapitalisation: Implications for the Nigerian Capital Market,” organised by the

Association of Capital Market Academics of Nigeria (ACMAN), declared that the planned exercise offers an opportunity for Nigeria to build a stronger, more resilient industry to propel the country towards a brighter, more prosperous future.

Some of the stakeholders at the virtual event were the President, Institute of Chartered Accountants of Nigeria (ICAN), Dr. Innocent Okwuosa; President, Chartered Institute of Bankers of Nigeria (CIBN), Dr. Ken Opara; Group Chief Executive Officer (CEO), Nigerian Exchange Group (NGX), Mr. Temi Popoola; President of the Nigeria Economic Society (NES), Prof. Adeola Adenikinju; and Chairman, Senate Committee on Capital Markets, Senator Osita Izunaso, among others.

In his opening remarks, Izunaso noted that the impending recapitalisation was necessitated by the depreciation of the naira and other factors, adding that it would make the banking sector stronger and enhance its ability to finance productive economic activities.

While commending the categorisation of banks in the current exercise, he stated that banking recapitalisation has the potential of deepening the capital market.

He, however, raised concerns about what he described as heightened risk of money laundering when banks opt for private placement, adding that there was the need to ensure that laundered funds did not find their way into banks’ recapitalisation

While noting that ACMAN headed by Prof. Uche Uwaleke, has a key role to play in public awareness pre and post-recapitalisation offers, he assured that the Senate Committee on Capital Market would provide support as appropriate for the success of the recapitalisation exercise.

In his presentation, the CIBN President, Opara, who was represented by the incoming President of the Institute, Prof. Pius Olanrewaju, noted that the banking sector recapitalisation exercise presents an opportunity for growth and stability in the sector.

“It will help banks to explore various options including capital raising, consolidation (mergers and acquisition). Banks will become bigger and able to support the economy.

“Raising Nigerian bank capital is an opportunity for the country to build a stronger, more resilient industry to propel Nigeria towards a brighter, more prosperous future,” he said.

According to Opara, the recapitalisation exercise would further empower banks to extend more credit to the economy’s productive sectors, contributing to the country’s ambitious goal of achieving a $1 trillion Gross Domestic Product (GDP) by 2030.

He noted that the current exercise, apart from capital raising, may also lead to further consolidation– mergers and acquisitions, adding that the two-year period will give banks that may go through this route the opportunity to explore options that will enable them to provide systemic impact.

The exercise, he further noted, would see a rise in activities within the capital market, and likely increase total market capitalisation, reflecting a more vibrant and dynamic financial sector.

“We believe that capital raising would further deepen the capital market. As at April 2024, the total Equity Capitalisation of the NGX stood at N57.56 trillion. Given the experience of the last recapitalisation exercise and with the size of NGX being the second best performing in Africa, capital raising is possible.

“Banks now require collaboration. For example, CIBN, NGX and Central Security Clearing System (CSCS) are collaborating to deepen the market,” he said.

For Popoola, recapitalisation would bring the Nigerian Exchange closer to the banks and the financial ecosystem, adding that the bourse could customise services for issuers.

For his part, Okwuosa, who spoke on taxation and financial reporting implications observed that Nigeria has adopted the International Financial Reporting Standards (IFRS), adding that some consequential activities are treated by specific IFRS provisions.

He stressed that there would be injection of capital, classified by financial instruments and accounted by IFRS 32.

This, he stated, would have implications for EPS (treated by IFRS 33).

Noting that mergers and acquisitions are covered by IFRS 3 on business combinations, he pointed out that exclusion of retained earnings suggests that retained earnings may have been impaired (IFRS 9).

“This sends wrong signal to investors who are relying on accounting standards. There is heightened risk of money laundering in the exercise,” he said.

He queried whether accumulated capital allowances can be subsequently used, post-merger.