Banks’ recapitalisation key to stock market growth

Expert and Capital Markets Professor Uche Uwaleke predicts that recapitalization of commercial banks will probably boost the stock market.

In an interview with the News Agency of Nigeria, Uwaleke called the establishment of the Central Bank of Nigeria a positive step forward.

He claimed that funding was necessary for large-scale projects, particularly since the government aimed to create a $1 trillion economy in the coming years.

Charles Soludo, a former governor of the CBN, increased banks' capital bases from N2 billion to N25 billion in 2004—the last time the CBN forced banks to recapitalize.
Among the incentives proposed by Uwaleke are differential cash reserve requirements and preferential access to the foreign exchange market for banks with strong capitalization.
"Incentives rather than force should be the main focus. A few Deposit Money Banks have already started working to boost their capital structure. Prudent guidelines are a tool that the CBN can use to reinforce the current tiered arrangements.

An excellent illustration is the application of the CAR, or the capital to risk-weighted asset ratio of a bank. In any case, Uwaleke stated, "smaller banks operating at the regional level shouldn't be regulated out of existence."
The Chartered Institute of Bankers of Nigeria, under the direction of Dr. Ken Opara, its president, had previously declared that banks were prepared for recapitalization.