As Nigeria’s banking sector enters a new phase following a successful recapitalisation exercise, a former Deputy Governor of the Central Bank of Nigeria (CBN) and Chairman of Lambeth Capital Limited, Mr. Tunde Lemo, has raised concerns over the possibility of an emerging bubble in the capital market.
Owing to this, he advised the CBN Governor, Mr. Olayemi Cardoso and his team to implement stronger regulatory safeguards and macro-prudential policies to preserve financial stability and prevent speculative excesses.
Lemo, a former chief executive officer of Wema Bank, gave the advice while speaking in an exclusive interview with THISDAY.
“For me, they (the CBN) should keep their eyes on the capital market. I suspect that bubbles might be building up in the capital market, and this happens each time you increase capital, because banks can then lend.
“If they unleash that lending and they are impatient, they may then begin to do a lot that would make share prices go up. But I know that there have been stronger regulations around making use of proprietary funds, how you can deploy depositors’ funds, or how you cannot deploy depositors’ funds in proprietary lending, and all of this.
“They should keep an eye on that so we don’t build another bubble that will bust later. But I think they are quite capable. Since the central bank went into narrow banking, they’re no longer doing fiscal activities and are becoming bankers to everybody.
“So, having now settled down to their primary role and doing it well, I’m very glad that they can keep all of us at peace because the banks have sufficient strength to withstand the exogenous shock should it arise,” he said.
The CBN recently revealed the outcome of the recapitalisation exercise, stating that Nigerian banks raised a total of N4.65 trillion within 24 months, strengthening the resilience of the financial system and enhancing industry capacity to support the economy.
The CBN stated that the exercise recorded strong participation from both domestic and international investors, with 72.55 per cent of capital sourced locally and 27.45 per cent from international markets, reflecting sustained confidence in the Nigerian banking sector. The exercise required banks to maintain a minimum capital of N500 billion, N200 billion, and N50 billion for commercial banks with international, national and regional licences, respectively.
Commenting on the expected impact of the exercise on the banking industry, Lemo, called on the apex bank to deepen stress testing and strengthen macro-prudential policies, warning that improved liquidity and uncontrolled lending could trigger market bubbles if not properly managed.
According to him, macro-prudential policies remain critical tools for maintaining financial stability, as they allow regulators to adjust measures in line with economic cycles.
He explained: “Macro-prudential activities are activities that are tweaked along the flow of the economic cycle. For instance, during a recession, you are supposed to utilise some of the reserve buffers that you had before. And then during the time of boom, of course, you are encouraged to ratchet up your provision, because it’s easier for you to make profits, so that you then save for the rainy day.
“All of this will be prescribed through different instructions at the macro-prudential level. I believe the regulators are doing the right thing. The banks are strong and resilient.”
When asked about how soon should the CBN embark on the measures, Lemo, who is also the Chairman of Flutterwave, said, “Immediately.”
He added: “There are other things they need to do like contingency planning. Contingency planning is to say in case I am short of deposit, another bank will bail me out, and vice versa. All of that should be done.
“Stress testing has to do with a situation where i have this level of non-performing assets, suppose the economy goes down further and there are a problems, and a spike in my non-performing assets from seven per cent to 12 per cent, will I still be able to cope? So once I conduct that stress test, I know how resilient I am.
“If I’m not very resilient there, then I have to slow down on my credit expansion, loan expansion, and so on and so forth. Once all of that is supervised, they also look at the rate at which the economy is growing.
Sunday Ehigiator
