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Nigerian banks are expected to raise N3.57 trillion in fresh capital within the specified timeframe of the Central Bank of Nigeria (CBN) which recently announced another review to minimum capital requirements.
When the current share capital and share premium of banks is subtracted from the new CBN minimum capital requirement, data from Meristem Research shows major funding gaps emerging for major lenders.
This includes Access (-N248bn), FBN Holdings (-N248.66bn), FCMB (-N374.7bn), Fidelity Bank (-N370bn), GTCO (-N361bn), UBA(-N384bn), and Zenith Bank (-N229bn).
Others are Citibank (-N185bn), Polaris Bank (-N149bn), Stanbic IBTC (-N90.7bn), Standard Chartered (-N154.58bn), Sterling Bank (-N142bn), Titan Trust (-N170bn), Unity Bank (-N183bn), and Wema Bank (-N184bn).
Major lenders such as FBN Holdings, Fidelity Bank, Wema Bank, and Access Corporation have already signaled their intentions to raise capital through rights issues and private placements.
The Central Bank of Nigeria (CBN) recently announced another review to minimum capital requirements (MCR).
This new directive mandates banks across various categories to boost their MCR within a two-year timeframe (April 1, 2024, to March 31, 2026).
The focus of the increase lies in Tier 1 capital, specifically share capital and share premium excluding shareholders’ funds.
“This emphasis suggests the CBN prioritizes fresh capital injections rather than simply relying on existing reserves. This is aimed at strengthening banks’ core equity base, allowing them to cushion the effect of any loss more effectively, and fueling further expansion within the banking sector,” analysts at Meristem Research said.
Background
In line with President Tinubu’s vision of a USD1trn economy in 2030, the new recapitalization directive is a strategic move to drive economic activities, fostering job creation and maximizing production.
This reform directly addresses key areas crucial for economic growth: deepening of the financial sector, maximizing production, and propelling business expansion through increased lending capacity.
Furthermore, a stronger banking system fosters global integration, attracting foreign investment and facilitating international trade.
This aligns Nigeria with regional and international best practices, creating a competitive environment that fuels the nation’s economic goals.
The urgency for this reform is underscored by the fact that Nigerian banking sector currently has one of the lowest assets-to-GDP ratios compared to global average (16.03% vs. a 74.68% 10-year average). While Nigerian banks might boast nominal growth in capital base measured in Naira, the devaluation of Naira paints a different picture when measured in dollar terms.
The 2024 recapitalization plan recognizes this disparity. Targeting a NGN3.57trn injection (USD2.79bn) dwarfs the USD190.80mn infused in 2005.
To meet these new capital requirements, the CBN has offered several options. They can raise fresh capital through various methods like private placements or public offerings. the consideration of potential job losses target market.
Alternatively, they can explore mergers and acquisitions which offer economies of scale and a quicker path to compliance, though there is – Lastly, upgrade or downgrade of licenses which allows banks to adjust their operational structure based on their capital position and target market.
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