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Recently, the Governor of the Central Bank of Nigeria, Olayemi Cardoso, announced that the apex bank would recapitalise Nigeria’s Deposit Money Banks (DMBs).
According to him, this development is in line with President Bola Tinubu’s US$1 trillion economy target.
As Nigeria seeks to achieve this target, the CBN believes Nigerian banks must be fortified to withstand potential shocks, contribute to the country’s economic growth, and prepare them for the envisioned larger economy.
This is coming 18 years after the apex bank recapitalised Nigerian banks from ₦2 billion to ₦25 billion under the leadership of former CBN Governor, Prof. Charles Chukwuma Soludo.
Before we dive into further details, let’s explain what bank recapitalisation means in layman’s terms.
Imagine you have a piggy bank where you keep your money.
The money in the piggy bank is like a bank’s capital, which is what the bank gives out to other people and businesses as loans.
Now, imagine the piggy bank gets shaky or broken, and some of the money gets lost; it’ll need some support to stay strong and safe.
For a real bank, this loss of money could come in the form of bad loans. A bank incurs bad loans when the money it lends to people and businesses cannot be recovered.
This situation could make banks unable to function or support a country’s economy because people and businesses who need loans to create jobs or expand their businesses won’t be able to do so.
So, to prevent this, the government or investors can give more money to the banks to strengthen them.-Business Insider Africa
Online Reporter