The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Mr Sam Onukwue has stated that with the proposed new capital requirements of banks, shall spur activities in the primary segment of the Nigerian capital market, which has remained largely inactive due to paucity of new issues over the years.
Determined to reposition banks in Nigeria for global competitiveness, Central Bank of Nigeria (CBN), had on March 28 this year, announced new capital base on the basis of a bank’s authorization, ranging from N200 billion to N500 billion and this is expected to commence in the next two years.
Responding to this directive, Onukwue, commended the apex bank for the proposed minimum share capital, given the level of risks that banks bear nowadays. He also explained that the development would create transactions in the primary market arm of the Nigerian capital market.
“I believe that the Central Bank of Nigeria (CBN), has done the right thing if our banks should compete in the global market, including the African Continental Free Trade Area (AfCFTA). With the current inflation rate and exchange rate, it has become almost impossible for our banks to operate in line with new global minimum capital threshold.
Besides, the level of risks which the banks bear today has significantly been exacerbated by the current macro-economic vagaries. I also believe the apex bank is repositioning the banks to be able to finance the envisaged $1 trillion economy in the next seven and eight years.
In the light of the foregoing, I have no doubt that the apex bank is fair enough to base the new share capital on the level of authorization of each bank. The next thing is for every bank to justify why it should continue to operate in the banking sector. We must admit that various external and domestic factors have significantly impacted the Nigerian economy, necessitating an increase in minimum capital requirements for banks. This measure aims to fortify their capital base, enable them to absorb unforeseen losses and sustain their role in fostering growth and development.
“The primary market has been relatively inactive over the years because of the general lull in the economy. Potential companies that would have floated initial Public Offerings (IPOs) were reluctant for fear of undersubscription. To worsen the situation, many investors have lost money in the primary market due to failure of companies to list their shares in the secondary market after capital raising in the primary market. However, with the directive on banks’ recapitalization, activities shall bounce back in the primary market.
“ASHON has always ensured that its members operate professionally, while the Association collaborates with the capital market regulators, operators and investors in the ecosystem. When the former Governor of the Central Bank of Nigeria (CBN), Professor ChukwumahSoludo, announced that banks in Nigeria should have a minimum capital base of N25 billion by the end of 2005, our members served as stockbrokers to the issues, issuing houses, and other areas of fund raising for the banks. Many lessons were learned at the end of the exercis. Our members have capacity to work with banks in various ways to meet the new requirements of recapitalization. “, Onukwue explained.
Commenting on the. new rules for Primary Market by Securities and Exchange Commission (SEC), he noted that it would curtail abuses of fund-raising in the market segment.
“I commend the new management of SEC, under the leadership of DrEmomotimi Agama for the new rules. The rules outline penalties for non-compliance, including fines starting from N10 million and additional daily penalties. Private companies must adhere to stringent requirements, such as being duly incorporated and having a minimum of three-year operational track record, with a cap of N15 billion on fundraising within one year. We believe that the punitive rules, if enforced will curtail abuse of capital raising in the primary markets and ensure adequate protection of investors,” Onukwue explained.
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