SOME banks will raise about N319.72 billion or N183.31 billion to meet the Central Bank of Nigeria (CBN) minimum capital requirements for their recapitalisation, findings by The ICIR have shown.
In a release on Thursday, March 28, the apex bank unveiled the guidelines and minimum capital requirements for banks’ recapitalisation.
It said the new minimum capital base for banks with international authorisation would be N500 billion; banks with national licenses, N200 billion; and banks with regional presence, N50 billion.
It also raised the minimum requirements for merchant banks to N50 billion, while non-interest banks with national and regional licences would raise N20 billion and N10 billion, respectively, according to the new guidelines.
It stated that for existing banks, the capital requirements should be paid-in capital (paid-up plus share premium) only.
The CBN also warned that share bonus issues, other reserves and Additional Tier 1 (AT1) capital should not be allowed or recognised to meet the new minimum capital requirements.
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Analysis: international, national banks need N319.72bn or N183.31bn on average
A cursory look at the financial statements of the 13 quoted banks on the Nigerian Stock Exchange revealed that most barely have half of the minimum capital to meet the requirements.
Access Holdings, with international exposure, currently has a N251.81 billion total share capital and share premium; Zenith Bank, N270.75 billion; FBN Holdings, N251.34 billion; United Bank for Africa (UBA), N115.82 billion; and Ecobank Transnational Incorporated (ETI), N353.51 billion.
Other banks with international exposure include Guaranty Trust Holding Company (GTCO) with a current share capital and share premium of N138.19 billion; Fidelity Bank, N129.71 billion; Sterling Financial Holdings Company, N57,154; FCMB Group, N125.29 billion; and Stanbic IBTC Holdings, N109.26 billion.
Other quoted banks are Wema Bank, which currently has an N15.13 billion share capital and share premium; Unity Bank, N16.33 billion; and Jaiz Bank, N18.62 billion, which fall in the categories of a national bank.
The ICIR analysis shows that, on average, banks with international authorisation will have to raise as high as N319.72 billion, and banks with national licences will look for N183.31 billion to meet CBN minimum capital requirements.
According to the CBN, all the categories of banks have a deadline of two years to meet the minimum capital requirement effective from April 1, 2024, to March 31, 2026.
It also directed the banks to submit their implementation plans by April 30 this year, indicating the chosen option(s) for meeting the new capital requirement.
The CBN also informed the banks to strictly comply with the minimum capital adequacy ratio (CAR) requirement applicable to their license authorisation.
According to a research firm, Investopedia, paid-up capital is the money a company receives from selling stock directly to investors through its initial public offer (IPO). At the same time, the share premium is the excess money received for issued shares above the par value.
Recapitalising the banks has become inevitable to enhance the financial stability of banks and fit into the Federal Government of Nigeria’s proposed $1.0 trillion economy by 2026.
The apex bank governor, Olayemi Cardoso, had, at the annual bankers’ dinner in November 2023, said it was crucial to evaluate the adequacy of the banking industry to serve the envisioned larger economy.
Since then, the concern over bank recapitalisation has been taking centre stage in most financial and public discourse, The ICIR reported.
Most analysts believe the two-year deadline is enough time for banks to recapitalise, and most banks will have to be taken over by bigger banks or downgraded to a lower category.
According to CBN, to enable banks to meet the minimum capital requirements, banks must consider injecting fresh equity capital through private placements, rights issues, and subscription offers, stressing that mergers and acquisitions and upgrades or downgrades were inevitable.
The ICIR reports that the last time the apex bank recapitalised the banks was in 2005, under the then CBN Governor Charles Soludo, when it pegged the minimum capital requirements at N25 billion from N2 billion.
Analysts foresee inflow of investors
Commenting on the new minimum capital requirements, an economist, Kalu Aja, said, “You (CBN and banks) have to bring in investors that will bring in new cash.”
According to Aja, a lot of naira cash of dollars will flow to the country and Nigerian banks.
He noted that banks in Nigeria have been great wealth creators for investors, adding that the bank recapitalisation looked like an opportunity to buy into the financial services of Africa’s largest economy.
“I will put this on my watchlist until specific banks come with specific offers,” he added.
Also, the Head of Financial Institutions Rating at Agusto&Co, Ayokunle Olubunmi, said the new minimum capital requirements meant that all the banks would have to raise capital, and some would have to merge or be acquired.
“Remember that some banks have already started working towards it. Looking at the experience of what we had in 2005, the banks went down from about 89 to 25.
“Currently, we have about 36 banks (made up of commercial, merchant and non-interest banks); if some have to go, there will be nothing bad in it while others scale down,” Olubunmi said.
He added that there could be no issue for the big banks as they could quickly get other shareholders to invest.