The International Monetary Fund (IMF) yesterday advised the Federal Government, and governments of other emerging economies to recapitalise commercial banks whose capital were affected by COVID-19 pandemic.
In a report entitled: “Policy options for supporting and restructuring firms hit by the COVID-19 crisis”, the Fund said banks, as main creditors of many corporations, will need to remain well capitalised to provide a continued flow of credit to the real economy.
It disclosed that in most countries, the losses in the enterprise sector will, ultimately, impact the banking system, with loan losses deteriorating the lenders’ solvency position and reducing lending space for bridge financing.
But Central Bank of Nigeria-led Monetary Policy Committee Member,Prof. Festus Adenikinju, said commercial banks have what it takes to withstand the impact of pandemic on their balance sheets and profitability margins.
In one of his notes at the MPC, Adenikinju, a Professor of Economics at the University of Ibadan (UI), said data from the CBN’s Staff on the Banking System Stability showed that the banking system remains resilient, strong, and coping well under the current challenging environment.
According to him, the Capital Adequacy Ratio (CAR), and Non-Performing Loans (NPLs) ratio are trending in the right direction. The Loan to Deposit Ratio (LDR) policy has boosted aggregate credit to the economy without impacting negatively on the NPLs ratio.
The IMF said corporate debt has increased further, in part as short-term liquidity needs were covered with additional borrowing.