With the Central Bank of Nigeria (CBN) increasing capital requirements for commercial banks, 13 lenders need to raise approximately N3.31 trillion in fresh capital within two years.
As of 2023, these banks’ current share capital plus premium amounted to N1.98 trillion, based on data from their financial statements for the full year and nine months.
The CBN circular requires banks to increase their total capital to N5.30 trillion.
Under the new guidelines, banks are now required to have a minimum capital of N500 billion for those with international authorization, N200 billion for those with national authorization, and N50 billion for those with regional authorization.
Merchant banks are required to have a minimum capital of N50 billion, while non-interest banks with national and regional authorization must have N20 billion and N10 billion, respectively.
Access Holdings has N251.81 billion in share capital plus premium, leaving N248.19 million to meet the CBN threshold.
The parent company of Access Bank plans to establish a capital raising programme of up to $1.5 billion or its equivalent to enhance its financial strength. This programme will involve issuing various financial instruments such as ordinary shares, preference shares, alternative Tier 1 capital, convertible and/or non-convertible debt bonds, or other capital and/or funding instruments.
Among tier-one banks, United Bank of Africa is expected to raise the largest sum, N384.19 billion, to meet the new CBN recapitalization requirement. It currently has N115.82 billion in share capital plus premium.
FBN Holdings has a share capital and premium of N251.34 billion and needs to raise N248.19 billion.
Guaranty Trust Holding Company has N138.87 billion according to its financial statements for the first nine months of 2023 and will need about N361.81 billion to meet the new requirement.
Zenith Bank has N270.74 billion and needs to raise over N200 billion.
Ecobank Transnational Inc., a tier-two bank with international authorization, needs to raise N146.48 billion to meet the new requirement, as it currently holds N353.51 billion in share capital plus premium.
FCMB and Fidelity Bank, with N125.29 billion and N129.71 billion respectively, will both need to raise over N370 billion
Stanbic IBTC and Sterling Bank, as national banks, are required to have N200 billion. Stanbic IBTC currently has N109 billion, while Sterling Bank has N57.154 billion. Wema and Unity Bank have N15.12 billion and N16.33 billion respectively, needing N184.87 billion and N183.66 billion.
Unity Bank, which operates internationally, needs to raise N351 billion, as its share capital stood at N148 billion as of September 2023.
Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, explained that the CBN’s directive means all banks must raise more capital since none currently meet the required threshold based on paid-up capital alone.
He mentioned that Nigerian banks can look beyond local sources for funding, including foreign investors.
Olubunmi believes that despite the significant financial commitment required, Nigerian banks should be able to meet the recapitalization targets, considering the sector’s importance in Nigeria.
He also expects changes in the banking sector, such as mergers, acquisitions, and the formation of larger banks, due to the strict regulations.
Ayodele Akinwunmi, a relationship manager at FSDH Merchant Bank, supported the policy, stating it will strengthen the banking system to better support the Nigerian economy.
He also sees it as an opportunity to attract foreign investors to Nigeria and bring in much-needed foreign exchange, which could lead to the naira’s value increasing.
“The banking sector is attractive to discerning foreign investors seeking good returns and strong growth potential,” he added.
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, supported the recapitalization, noting that the last major one was in 2004 when the capital base for national banks was N25 billion, equivalent to about $190 million at the time. Adjusting for inflation, this is now equivalent to N250 billion. He believes the review is justified to ensure banks remain stable, absorb shocks, and do not pose risks to the financial system.
Uche Uwaleke, a professor of Capital Market at Nasarawa State University Keffi, welcomed the recapitalization, seeing it as a move that will strengthen Nigeria’s financial system and potentially boost the stock market.
Uche Uwaleke finds the new minimum capital requirements reasonable given the naira devaluation after the exchange rate unification, unlike the uniform N25 billion capital base set in 2004. He explains that shareholders’ funds consist of paid-up share capital and reserves.
While total shareholder’s funds were
allowed in 2005, they are no longer permitted, possibly learned from the last exercise.
Uwaleke believes that banks like FBN, UBA, GTB, Access, and Zenith with international authorization will likely meet the requirement without difficulty. He sees the stock market as the most feasible option for raising capital, with few likely to pursue mergers and acquisitions. He also thinks the two-year period allowed for recapitalization
is sufficient.
He suggests that the CBN could consider applying a differentiated cash reserve ratio based on the license category instead of a uniform rate (currently 45 percent) for commercial banks, given that the new capital base varies based on the type of authorization.
