The Director of the Financial Policy and Regulatory Department (FPRD) at the Central Bank of Nigeria (CBN), Haruna B. Mustafa has said that the reason for the exclusion of retained earnings is for banks to inject fresh capital into the system.
Mustafa said this in a podcast titled ‘Banking Sector Recapitalisation Programme 2024′ obtained by NewsNGR.
On March 28, 2024, the CBN raised capital requirements for banks operating in the country to N500bn for international, N200bn for national, and regional banks to maintain a minimum share capital of N50bn.
The exercise which took effect on April 1, 2024, is believed to strengthen the resilience of the banking sector and set the path for the proposed $1tn economy.
However, the bank said other reserves and Additional Tier 1 (AT1 Capital shall not be allowed or recognized for the purpose of meeting the new minimum capital requirements.
This condition was largely criticised by industry experts.
Mustafa said, “Section 9 and Section 63 (2a)of the Bank’s and Other Financial Institutions Act, 2020 empower the Central Bank to determine the capital of banks and also the timeline within which banks should comply with those requirements. It also enables the CBN to set the level and quality of capital that all the banks will have. And this is without prejudice to what should constitute the shareholder’s funds.
“What the central bank has simply done is to ensure that banks inject fresh equity, fresh capital. Don’t forget, banks are in the business of financial intermediation, and this comes with risks. The capital is there to absorb some of these, these risks or losses that may arise from their operations.”
He explained further that Nigeria’s banking system is safe, sound, and resilient adding that the regulator is only trying to enhance and further strengthen the banking system.
Mustafa added, “What we have simply done is to nudge the banks to inject fresh capital. This is without prejudice, like I mentioned, to what the different components of shareholder’s funds will be, and like we have stated in our circular.
“Shareholders’ funds with other reserves will continue to be recognized in the computation and determination of banks’ capital adequacy ratio, which is an important metric.
“In our assessment of the soundness of banks. So, it doesn’t detract from what the capital adequacy ratio of banks should be, and we are not changing the definition of capital.”