Amid ongoing efforts to raise minimum capital requirements in line with new regulatory thresholds, experts assert that building a banking sector supportive of economic growth involves more than just financial investments.
According to analysts, merely injecting capital into the banking sector will not transform the financial system into a robust driver of economic growth. They emphasized that coordinated public and private sector plans, encompassing policies and processes, are equally crucial.
During Proshare’s third Tier 1 Banks Report presentation in Lagos, experts highlighted the need for banks to focus on macro and microeconomic risks that could lead to poor asset and liability management (ALM) as they undertake the recapitalization exercise. They pointed out that inadequate asset management contributed significantly to the failures of Silicon Valley Bank, First Republic Bank, and Signature Bank last year.
The analysts noted that bank equity sizes have increased over tenfold or by 1,150 percent, from N2 billion to N25 billion, between 2000 and 2005. Despite this substantial increase in equity, the country’s GDP growth has remained modest, indicating that merely raising capital is insufficient.
They emphasized that many banks risk falling short without a deliberate strategy to transition from cash flow to value creation. Recalling the challenges faced by banks during the Charles Soludo-led recapitalization in 2005, they noted that some bank executives lacked the necessary business skills, leading to inefficient use of additional capital.
“Banks are like bulls in a pen; they are stuck behind bars that are difficult to escape. Banking, on the other hand, is free-spirited, agile, and capable of reinterpreting economic reality. Over the last two decades, the financial payment and settlement business has increasingly grown on the back of cloud-based blockchain technology, which may be destined to improve the efficiency of financial transactions and the quality of person-to-person (P2P) and business-to-business (B2B) relationships,” the report stated.
The report identified Access Holdings as a leader in the recapitalization race, alongside other prominent institutions such as Zenith Bank, FBN Holding, Ecobank, UBA, and GTCo. Additionally, analysts observed that banks are adopting increasingly aggressive strategies to acquire digital market share while supporting lower operating costs.
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