* Does Higher Capital Base Really Translate To Economic Growth?”, Stakeholders Ask
As Nigerian banks begin frantic moves to meet up with the new capital base requirement, the questions on the lips of some analysts is whether the craze to belong to the the tier one group wold not create challenges such as the potential risks of creating “too big to fail” banks in Nigeria, and the likely implications for the larger economy n the event of any eventuality.
Metrobusnessnews.com (MBN) gathered that beside Fidelity bank, which has successfully migrated and joined the big ticket lenders with the acquisition of the Union bank, United Kingdom subsidiary, others are exploring options of offshore acquisitions of either subsidiaries or spreading their operations beyond the shores of Nigeria to join, with the attendant rat race for the N500billion capital requirements by the Central Bank of Nigeria (CBN).
Beside the need for the defined role of regulatory bodies in striking a balance between prudential regulation and financial inclusion goals, the analysts say the posture of ‘too big to fail’ might set in and giving the regulatory and supervisory gaps as well as the leadership question, the consequences of ‘miscalculations based on the perceived over confidence on the part of the players might be big for the economy to bear.
However, some other analysts see the merit in the emerging financial stability in Nigeria as seen in the Access Bank’s merger with Diamond Bank, and the impact on customers and the economy, as well as maintaining confidence in the banking system as well as the economies of scale as the bigger lenders can offer a wider range of services, invest in technology, and operate efficiently even with access to international markets and attract foreign investment and facilitate international trade, the risk of possibility of large banks posing systemic risks, threatening the entire financial system if they fail, according to them, still exist.
They further argue the possibility of reducing competition as smaller banks may struggle to compete, leading to a lack of innovation and limited access to credit.
More worrisome, they further contend is the moral burden of the larger than life “Too big to fail”, that could make the ‘safer’ banks taking excessive risks, knowing they’ll be bailed out if things go wrong
Friday Ameh, Lagos based analyst said raising capital requirements can strengthen banks’ resilience and ability to absorb shocks, but that the large disparity between international (N500b) and national (N200b) banks’ capital requirements may create an uneven playing field.
Another analyst says the only way out is foe the smaller or troubled banks to merge or be acquired, so as to reduce competition and access to credit for some customers.
He also added that the higher capital requirements may lead to higher lending rates and reduced credit availability, a development that would leave smaller banks and rural branches at tme mercy of the bigger ones, exacerbating financial exclusion.
He added that while CBN’s justification for increasing the capital base based on the need to strengthen the banking system and prepare it for economic growth might be okay, there is need to be wary of the accompanying challenges of the risk of concentration, whereby large banks can pose systemic risks, threatening the entire financial system if they fail.
