- The CBN announced a raise in the minimum capital base of deposit money banks in March
- The raise, which is happening 20 years after the last recapitalisation exercise, was first hinted at by the CBN governor in November 2023
- With the announcement, banks are making moves to meet the 24-month recapitalisation window
The apex bank had, on March 28, 2024, announced new guidelines for its recapitalisation policy for DMBs in the country.
The circular, signed by the Director, Financial Policy and Regulation Department, Mr Haruna Mustafa, stipulated a 24-months window, from April 1, 2024 to March 31, 2026, for commercial, merchant and non-interest banks to upwardly review their minimum capital base depending on their licence authorisation.
The CBN said the move is to strengthen banks’ capacity to support economic growth. It said, “The prevailing microeconomic challenges and headwinds, occasioned by external and domestic shocks, have underscored the need for banks to raise and maintain adequate capital to enhance their resilience, solvency and capacity to continue to support the growth of the Nigerian economy.”
The recapitalisation policy requires commercial banks with international authorisation to raise their capital base to a minimum of N500 billion from N50 billion previously; those with national authorisation will raise theirs to N200 billion from N25 billion, while those with regional authorisation are required to reach N50 billion threshold from N10 billion.
Merchant banks with national authorisation will have to increase their capital base to N50 billion from N15 billion previously, non-interest banks with national authorisation are expected to increase theirs to N20 billion from N10 billion, while non-interest banks with regional authorisation will raise their capital base to N10 billion from N5 billion.
The new guideline applies to existing and proposed banks whose licence applications were submitted after April 1, 2024.
The CBN also said to meet the minimum capital requirements, banks may decide to inject fresh equity capital through private placements, right issues and/or offers for subscription, mergers and acquisitions, and/or upgrade or downgrade of licence authorisation.
The circular noted that banks should submit an implementation plan, clearly indicating the chosen option(s) for meeting the new capital requirement and various activities involved with their timelines, not later than April 30, 2024.
Recapitalisation move was mooted in 2023
Though the CBN’s bank recapitalisation guideline was announced in March, the plan was first mooted in November 2023 by the CBN governor, Olayemi Cardoso, during the 58th annual bankers’ dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos.
Cardoso had said the recapitalisation plan was to enable banks meet the demands of the economy, particularly in being able to provide support for manufacturers and industrialists given that President Bola Tinubu, in his Policy Advisory Council report on the national economy, set a target of achieving a N1 trillion Gross Domestic Product (GDP) by 2030.
“Considering the policy imperatives and the projected economic growth, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy.
“It is not just about the stability of the financial system in the present moment, as we have already established that the current assessment shows stability.
“However we need to ask ourselves: Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a N1 trillion economy in the near future? In my opinion, the answer is “No” unless we take action.
“Therefore, we must make the difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital,” Cardoso had said.
In readiness for the recapitalisation move, Cardoso said approval had been given for another round of Open Market Operations (OMOs) to mop up excess liquidity from the banking system.
The CBN uses OMOs as the major monetary policy instrument to buy or sell securities with financial institutions in the open market to influence the amount of money in circulation and/or interest rates.
Cardoso had also hinted of the recapitalisation move during the 294th meeting of the Monetary Policy Committee (MPC) in March this year, two days before the official announcement of the policy.
Backstep: CBN hasn’t raised banks’ capital base in 20 years
The last time the capital base of banks was upwardly reviewed was in 2004 when the CBN, under Professor Charles Soludo, made a bank consolidation move, which saw the number of banks in Nigeria drastically reduce from 89 to 25.
The CBN had required banks to increase their minimum capital base from N2 billion to N25 billion within 18 months. Those who could not meet the capitalisation target through new issues, mergers or acquisitions were shown the door. Eighteen such banks had their licences revoked by the CBN.
Soludo said the move was in response to concerns about Nigerian banks’ capacity to match the demands of 21st Century banking, a diversified strong and reliable sector and a huge player in the African and global financial system.
The move ultimately freed Nigerian banks from reliance on public sector funds and strengthened them to finance bigger projects within the telecommunications, oil and gas and other sectors.
With the devaluation of the Naira over time owing to soaring inflation, another round of recapitalisation has become expedient to shore up banks’ ability to withstand loan losses and economic shocks as well as to ensure the resilience of the country’s financial system.
Banks in race to meet new capital requirement
Since the announcement, Nigerian banks are not resting on their oars despite a report released in March by Ernst and Young that at least 17 out of the existing 24 DMBs might be unable to meet the CBN’s capital requirement if it is increased from the current N25 billion, although banks in the country are largely safe and resilient as at 2023 from all financial soundness indicators.
It was also reported that banks may require up to N4.7 trillion to meet the recapitalisation benchmark as findings from audited and unaudited financial reports of the 12 leading banks in the Nigerian Exchange Limited (NGX) showed a funding gap of N2.8 trillion while others outside the NGX is estimated at N1.9 trillion.
With the expiration of the deadline to outline their recapitalisation plan, only seven banks, including Zenith, Access Holdings, First City Monument Bank (FCMB) Plc, Stanbic IBTC, Guaranty Trust Holding Company (GTCO), United Bank or Africa (UBA) and Fidelity, were initially reported to have made their plans public.
However, FirstBank of Nigeria (FBN) Holdings, later announced that it would raise an additional N300 billion in capital, which can be issued via a public offering, private placement, or rights issue in the Nigerian and international capital markets or a combination of the listed methods. Unity Bank, on the other hand, had said it would meet the submission deadline.
While Access Holdings, the parent body of Access Bank, said it would raise N365 billion by selling shares to existing investors, GTCO sought shareholders’ approval to raise $750 million through the issuance of securities like ordinary shares, preference shares, convertible and/or non-convertible notes, bonds, etc., in Nigeria and/or international capital markets as either a stand-alone issue(s) or establishment of capital raising programme and through other means required.
UBA is considering a combination of such options as rights issue or private placement to raise about $200 million from the international capital market and raising another round of funding from the local market for a yet-to-be-specified amount.
The board of FCMB Group Plc, the parent body of FCMB Limited, had approved a strategy including raising equity capital, for the required N200 billion minimum capital base of the national commercial licence authorisation of the bank.
Stanbic IBTC Holdings Plc launched N550 billion capital-raising programme, which includes a N150 billion rights issue and N400 billion debt capital raising. Shareholders also meet to authorise the raising of additional equity capital of up to N150 billion through rights issue or offer for subscription on such terms, tranches, conditions and dates as may be determined by the directors.
On the other hand, Zenith Bank, which requires the least as it is currently Nigeria’s most capitalised bank, got shareholders’ approval to restructure into a holding company and has created new 34 billion ordinary shares of 50 kobo each for a multi-layered capital raising process that can raise the bank to nearly N1 trillion.
On June 20, Fidelity Bank opened its N127.10 billion rights issue of 3.2 billion ordinary shares of 50 kobo each at N9.25 per share and public offer of 10 billion ordinary shares of 50 kobo each at N9.75 per share.
Wema Bank had, in mid-June, concluded the first tranche of its capital raise programme after getting relevant regulatory nods from the CBN and the Securities and Exchange Commission (SEC) for the allotment of its N40 billion rights issue. The programme was initiated in December 2023 during the bank’s Annual General Meeting (AGM), where shareholders approved of an additional N150 billion raise within 12 to 18 months to meet the capitalisation threshold.
For merchant banks, there could be a switch in operations or authorisation from merchant banking to regional commercial banking as the new capital requirement for merchant banks and regional commercial banks is N50 billion each.
As more banks rally to raise their capital base, the SEC, on Friday, June 21, released a framework to support the CBN recapitalisation programme and ensure a smooth, transparent and efficient capital-raising process for banks and holding companies.
The framework spelt out guidelines and procedures that banks must follow to raise capital through rights issuance, private placements or other CBN-approved methods during the 2024-2026 recapitalisation period.
Heritage Bank: What happens to depositors' funds when a bank's licence is revoked?
Meanwhile, TheRadar earlier reported that the licence of Heritage Bank had been revoked by the Central Bank of Nigeria.
In the event of this, depositors are unsure of what happens to their money, and here is what happens to the money of people who operate accounts with a bank that is forced to shut down operations.
