Going by the new capital requirements released by the Central Bank of Nigeria (CBN) for commercial, non-interest and merchant banks on Thursday night, 25 banks operating in Nigeria would need to raise not less than N3.894 trillion in fresh capital to meet up with the new minimum capital base.
This is as the apex bank have been cautioned to watch out for inflows of illicit funds that may be directed towards the capitalisation bid of the banks.
Having mentioned late last year at the Bankers Dinner in Lagos that the apex bank would beworking on a recapitalisation bid for the banking industry to cater to the $1 trillion economy that is being targeted by the President Bola Ahmed Tinubu led government, the Dr Olayemi Cardoso-led CBN made good its word with a steep increase in the required capital base for commercial, non interest and merchant banks in the country.
According to the new requirement, commercial banks with international licenses are required to have a capital base of N500 billion while their national and regional counterparts are required to have capital base of N200 billion and N50 billion respectively.
Similarly, the capital base of national non-interest banks were raised to N20 billion while that of regional non-interest was raised to N10 billion. Merchant banks capital base was also raised to N50 billion.
LEADERSHIP findings showed that while the fate of some banks with holding company structure are not fully clear, nearly all the banks with the exception of the two regional non interest banks met the new capital base. Taj Bank and Lotus Bank both have currently more than the N10 billion that is required for them to continue operation.
In total, the 25 banks surveyed by LEADERSHIP showed a cumulative N2.049 trillion in paid up capital and share premium. This means that the banks would be needing a total of N3.894 trillion to meet up with the new capital base should they decide against mergers, acquisitions and reclassification.
Speaking on the capital base, Head of Financial Institutions at Agusto & Co, Ayokunle Olubunmi noted that whilst the recapitalisation bid will see another interesting couple of years in the banking industry, the CBN has to be cautious in ensuring that the industry is not flooded with illicit funds.
According to him, the apex bank will have to shore up its oversight and regulatory functions to ensure that flow of funds from terrorism, corruption and illicit proceeds are not laundered through the recapitalisation of banks.
“The CBN will have to ensure that proceeds from drugs and terrorism does not come in. Secondly, the CBN also need to ensure that it recapacitate itself such that they have the tools, the capacity to supervise the bank of such sizes. Because one major thing we have realised is that after the recapitalisation exercise, CBN is not able to supervise those banks and those are the things they should watch out for.
“And on the part of the bank, the banks need to be careful because if they are not careful with the merger and acquisition and other events that may come again, they need to be carefully that they don’t have a marriage of strange bedfellows. They need to ensure that the person they bring onboard is someone they have the same vision with, because that can ultimately kill the brand.”
Olubunmi stated that whilst everyone was expecting recapitalisation, “the format which the CBN went about it is not what everybody expected. Everybody was thinking about shareholders fund but they surprised everyone by coming from the angle of paid up capital instead of shareholders fund that was traditionally used. All the banks will be required to actually go to the market and raise capital.
“But the banks have two years, it is not something that if they don’t do it now, they will be in trouble. The other thing is that this is just the beginning and I’m sure that will there will be a lot of engagement. The banks will push back, particularly with the paid up capital, they will push back and may even ask the CBN to add retained earnings to it.
“If the CBN sticks to its decision, the banks will have to bring in institutional investors, and some will either merge or leave the industry. There would also be the option of scaling down to meet the recapitalisation so it is a lot of interesting times ahead
“Another thing is that the CBN wasn’t to use this to galvanize the inflow of dollars. because each of the banks will need the money required for recapitalisation and may have to source for investors outside the country, increasing the inflow of dollars that will help the industry.
On her part, Group head of Global Markets at Parthian Partners, Ronke Akinyemi said the new bank recapitalisation requirements by the CBN is a step in the right direction as it will eventually result in a more robust financial system. Though steep, we believe the time frame given will allow room for the current banks to meet the requirements before the deadline.
“Ultimately, we envision that this new recapitalisation requirement will result in increased foreign direct investments which will in turn help to stabilise the naira, thus we expect to see rounds of capital raises especially with the restrictions of the capital requirement to share capital and share premium. In addition, we envisage that there will be mergers between tier 1&2 banks and also among tier 2 banks to meet this new requirements.”
Speaking on this, the vice president, Highcap securities Limited, Mr. David Adnori said that the new capital base will be judged by the combination of the paid-off capital and share premium.
He noted that a lot of the banks that have large reserves and they will need to capitalise on their reserves, by converting them into paid-off capital, saying that if a lot of the banks do that, a lot of them will massively surpass that figure.
Adnori noted that the emphasis is mainly on banks with international operations and one can see the rationale behind the huge increase for those commercial banks with foreign exposures through their foreign operations because of the depreciation of the naira.
He pointed that a lot of those banks already have a lot of amount in their reserves which become capitalized. But some of them have also opted to go afresh, to raise fresh capital from the capital market, to increase their paid-up capital base.
He added that the fear now is that if a lot of them besiege the capital market to raise capital, then they will be crowding out funds from the real productive sector that has a serious shortage of capital.
“So, one would actually have expected that public policy should be aimed at shifting capital to recapitalise the productive sector, and not again to shift capital from the economy to the banking sector that is already well capitalized,” he said.
The doyen of the Nigerian Exchange Limited, Rasheed Yusuf, said stated that the local bourse can support such a major capital raise, even without the presence of foreign investors.
An economy and capital market analyst, Rotimi Fakayejo said “the market will support it with the deadline of 24 months. At such a time, Foreign Portfolio Investors would have started returning to the market gradually.”
Based on this, under the commercial banks with international authorisation of N500 billion; Access Bank, Fidelity Bank, FCMB, First Bank, Guaranty Trust Bank, Union Bank, United Bank for Africa and Zenith have with a total amount of paid-up capital and share premium to be N251.81 billion, N129.71 billion, N125.29 billion, N251.34 billion, N138.19 billion, N148.09, N115.82 billion, and N270.75 billion, respectively. This shows that the institutions will be raising capital to meet up with the new capital base of N248.19 billion, N370.30 billion, N374.71 billion, N248.66 billion, N361.81 billion, N351.91 billion, N384.19 billion, and N229.25 billion, respectively.
Also, out of the Commercial Banks operating all over the country, EcoBank Nigeria met the new capital base as the Bank’s issued share capital and share premium stood at N353.51 billion exceeding the N200 billion new capital base. The paid-up capital and share premium of CitiBank Nigeria Limited (N14.44 billion), Polaris Bank (N50.43 billion), Stanbic IBTC Bank (N109.26 billion), Standard Chartered Bank Limited (N45.42 billion), Sterling Bank (N57.15 billion), Titan Trust Bank (N29.20 billion), Unity Bank (N16.33 billion), and Wema Bank (N15.13 billion) will be adding a new capital of N185.56 billion, N149.57 billion, N90.74 billion, N154.58 billion, N142.85 billion, N170.80 billion, N183.67 billion, and N184.87 billion respectively
Meanwhile, under the regional non-interest banking with a new capital base of N10 billion, TAJ Bank and Lotus Bank met the requirement by N14.06 billion and N13.03 billion respectively.
Based on the stipulation of the CBN, Access Corporation, the parent company of Access Bank has paid-up capital and share premium of N251.811 billion according to its 2023 full-year result released yesterday hence a shortfall of N248.189 billion.
FBN Holdings, the parent company of FirstBank has paid-up capital and share premium of N251.3 billion, hence a shortfall of N248.66 billion, according to its Q3’23 results. The paid-up capital and share premium of GTHoldco, the parent company of GTBank stands at N138.186 billion as of Q3’23, hence a shortfall of N361.814 billion
UBA has paid-up capital and share premium of N115.815 billion, hence a shortfall of N384.185 billion according to its Q3’23 Zenith Bank has a paid-up capital and share premium of N270.745 billion, hence a shortfall of N229.255 billion.