We have the answer: “What we have simply done is to nudge the banks to inject fresh capital and this is without prejudice to what the component of shareholder’s funds could be. And like we have stated in our circular, shareholders’ funds would continue to be recognized in the computation determination of banks capital adequacy ratio which is an important metric in our assessment of the soundness of banks” – Haruna B. Mustafa, the Director of the Financial Policy & Regulatory Department at the Central Bank of Nigeria (CBN).
Haruna B. Mustafa, the Director of the Financial Policy & Regulatory Department at the Central Bank of Nigeria (CBN), has provided insights into the exclusion of retained earnings of banks in the proposed capitalization process, amidst objections raised by some bankers.
The decision announced just two weeks ago, has stirred a robust debate within the banking sector.
Mustafa, speaking in the latest edition of the CBN podcast published on the bank’s website on Monday, clarified that the apex bank’s rationale behind excluding retained earnings is to encourage deposit money banks nationwide to infuse fresh funds into their capital base.
That is it – “fresh capital”. I will only add that every business in Nigeria needs that for the same reason banks need more capital even though you may not be as strategic as a bank to the economy.
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Central Bank of Nigeria Explains Exclusion of Retained Earnings from Capitalization Process
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