The Central Bank of Nigeria’s (CBN) Director of Financial Policy & Regulatory Department, Haruna B. Mustafa, has given explanations for why bank retained earnings are not included in the suggested capitalization procedure.
The CBN Director explained that the purpose of the apex bank’s exclusion of retained earnings in the most recent episode of the podcast, which was posted on the bank’s website on Monday, is to guarantee that deposit money banks nationwide add new capital to their capital bases.
He said, “We have just encouraged the banks to add new capital; our actions have no bearing on the potential composition of shareholder money. Additionally, as we mentioned in our circular, the capital adequacy ratio—a crucial indicator in our evaluation of the stability of banks—will continue to take shareholders’ contributions into account.”
Mustafa went on to say that the recapitalization initiative is intended to increase banks’ ability to take on more ambitious projects for the growth and development of the nation.
He also mentioned the bank’s 2004 recapitalization exercise and how it protected Nigerian banks from the 2008 global financial crisis’ knock-on effects, adding that the current recapitalization effort will fortify Nigerian banks against unanticipated financial threats worldwide.
Remember Last month, TNC reported that the CBN announced a raise in capital requirements for various tiers of banks across the country, the first of its sort since the 2004/2005 recapitalisation operation. The national banks’ expected capital was set at N200 billion, but the apex bank increased the capital requirement for Tier-1 banks to N500 billion.
The CBN did, however, point out that paid-up capital and share premium would make up additional capital, with shareholder funds excluded. This policy has sparked a lot of discussion.
Nigerian bankers have expressed their resistance to the elimination of retained earnings, citing its flaws and legal and conventional treatment of a company’s capital structure as reasons for their objections.
