CBN Unveils Bold Plan: Banks Set for Recapitalization Drive to Propel Nigeria’s $1 Trillion GDP Goal

The announcement of a new round of banking recapitalization for Deposit Money Banks (DMBs) came from Mr. Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), during the 58th Annual Bankers’ Dinner in Lagos, organized by the Chartered Institute of Bankers of Nigeria (CIBN), as reported by InfoStride News.

This recapitalization initiative implies that DMBs will need to raise additional capital to meet the economic demands of Nigeria. Cardoso emphasized the necessity for banks to be recapitalized, considering their vital role in the ambitious target set by President Bola Ahmed Tinubu to achieve a $1 trillion Gross Domestic Product (GDP) by 2030.

In a report to the Policy Advisory Council on the national economy, specific priority areas and strategies were outlined to attain this economic milestone. Cardoso underscored the substantial role banks play in realizing the envisaged $1 trillion economy by 2030.

Regarding the recapitalization process, Cardoso stressed the need for banks to be adequately capitalized to fulfill the significant developmental role expected of them in the next seven years. He linked this initiative to the administration’s ongoing fiscal reforms, such as the removal of petrol subsidies and the unification of the foreign exchange market rate.

While acknowledging the present stability of the financial system, Cardoso posed a critical question: Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy shortly? His response was negative, asserting that action needs to be taken. As a first step, banks will be directed to increase their capital.

In addition to the recapitalization announcement, the CBN governor disclosed the approval of another round of Open Market Operations (OMOs) to address excess liquidity in the banking system. OMOs serve as the primary tool for monetary policy, allowing the central bank to trade securities with financial institutions in open markets, influencing money supply and interest rates.

Cardoso shared details of a recent OMO auction with a top rate of 17.5 percent for the one-year tenor, attracting oversubscription of N350 billion. Another round of OMO has been approved, offering N108.1 billion worth of Treasury Bills with three tenors to reduce liquidity in the banking system and support government fundraising.

Moreover, Cardoso clarified that the monetary policy instruments would be utilized to curb inflation and stabilize the foreign exchange market rather than for development financing. He emphasized the CBN’s commitment to achieving monetary and price stability, outlining the real-life implications for citizens’ well-being. Through targeted policies, transparent market operations, and coordination between monetary and fiscal authorities, the CBN aims to ensure a more stable exchange rate, control inflation, and create an enabling environment for businesses and individuals to thrive.