Banks in the country face the fresh hurdle to raise their minimum capital requirements to N500 billion and N200 billion for their International and national operations, the Central Bank of Nigeria (CBN) has announced.

Days after urging Nigerian banks to expedite action on the recapitalisation of their capital base in order to strengthen the financial system, the Central Bank of Nigeria (CBN) on Thursday, unveiled new minimum capital requirements for banks, pegging the minimum capital base for commercial banks with international authorisation at N500 billion.

This is from the current minimum capital base of N50 billion for an international banking licence while the national bank capital requirement is at N25 billion.

The regional banking licence was put at N10 billion, and the merchant bank capital requirement at N15 billion.

LEADERSHIP reports that even tier-1 banks like Zenith Bank UBA, Access Bank and others tier-1 banks with very high shareholders’ fund will still need to raise additional capital to meet the new threshold of N500 billion.

With the CBN stipulating that existing banks’ minimum capital shall should comprise paid-up capital and share premium only, this means that banks can no longer include their retained earnings which would normally be added to compute banks’ shareholders’ funds.

The central bank in a statement said the new minimum capital base for commercial banks with national authorisation is now N200 billion, while the new requirement for those with regional authorisation is N50 billion.

Acting director, corporate communications department, of the CBN, Mrs Hakama Ali in the statement also disclosed that the new minimum capital for merchant banks would be N50 billion, while the new requirements for non-interest banks with national and regional authorisations are N20 billion and N10 billion, respectively.

She quoted a circular signed by the director, financial policy and regulation department, Mr. Haruna Mustafa, to all commercial, merchant, and non-interest banks and promoters of proposed banks as emphasising that all banks are required to meet the minimum capital requirement within 24 months commencing from April 1, 2024, and terminating on March 31, 2026

According to the circular, the move, initially disclosed by the CBN Governor, Olayemi Cardoso, in his address to the annual bankers’ dinner in November 2023, was to enhance banks’ resilience, solvency, and capacity to continue supporting the growth of the Nigerian economy.

To enable them to meet the minimum capital requirements, the CBN urged banks to consider injecting fresh equity capital through private placements, rights issues and/or offers for subscription; Mergers and Acquisitions (M&As); and/or upgrade or downgrade of licence authorisation.

Furthermore, the circular disclosed that the minimum capital shall comprise paid-up capital and share premium only. It stressed that the new capital requirement shall not be based on the shareholders’ fund.

“Additional Tier 1 (AT1) Capital shall not be eligible for meeting the new requirement. Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio (CAR) requirement applicable to their licence authorisation.

“In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularise their position,” it added.

The CBN circular said the minimum capital requirement for proposed banks shall be paid-up capital, adding that the new minimum capital requirement shall apply to all new applications for banking licences submitted after April 1, 2024.

It stated that the CBN would continue to process all pending applications for banking licences for which a capital deposit had been made and/or an Approval-in-Principle (AIP) had been granted. However, it said that the promoters of such proposed banks would make up the difference between the capital deposited with the CBN and the new capital requirement no later than March 31, 2026.

Meanwhile, the CBN said all banks are required to submit an implementation plan (clearly indicating the chosen option(s) for meeting the new capital requirement and various activities involved with their timelines) no later than April 30, 2024. The CBN also disclosed that it would monitor and ensure compliance with the new requirements within the specified timeline.

Accordingly, based on this new computation of the paid-up capital and share premium, banks with international banking licences such as Access Bank which currently has a minimum capital of N251.81 billion, would have to raise N248.19 billion to meet the new capital requirement of N500 billion.

In the case of other international banks such as Ecobank, it currently has a minimum capital of N353.51 billion, but would have to raise N146.49 billion; First Bank of Nigeria Holdings (FBNH) Plc with N251.34 billion, will need to raise N248.66 billion; FCMB with N125.29 billion, will need to raise N374.71 billion; GTB with N138.19 billion, will need to raise N361.81 billion; and Fidelity Bank with N115.31 billion, will need to raise N384.70 billion.

Other international banks include UBA with a minimum capital of N115.82 billion, but will need to raise N384.18 billion, and Zenith Bank with N270.75 billion, but will need to raise N229.26 billion.

Meanwhile, national banks such as Stanbic IBTC with N109.26 billion as minimum capital, will need to raise N90.74 billion to meet the minimum capital requirement of N200 billion, while Sterling Bank with N57.15 billion, will need to raise N142.85 billion.

Speaking on this, the chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion stated that the tier one Banks like Zenith Bank would not need to raise capital as they were already highly capitalised.

He said, “for those that have not qualified, they can merger or go to market to raise new capital through public offer or right issue.”

Omordion stated that this is a good development as it will make the banks stronger, but at the same time, it is going to dilute some shareholders’ structure of the Banks and also dilute their earnings because they need to have additional shares.

He noted that the time frame given by CBN is of good advantage to the Banks.

Gloria Fadipe, head of research at CSL Stockbrokers Limited, highlighted that banks have the option to raise capital either through public offers or by incorporating foreign debt into their financial portfolios.

“We would see banks opting for public offers to raise funds in the market,” Fadipe said.

She also noted that in the short term, there might be an earnings dilution as they raise capital through public offers. However, over time, as banks effectively utilize the raised capital and become profitable, the earnings per share (EPS) should stabilize or even increase in the medium to long term.

“Initially, there will be an increase in the number of shares, and immediate profitability might not occur. As profitability grows, EPS will even out or potentially grow as banks leverage the capital raised,” Fadipe said.

She also noted an alternative approach where banks avoid public offers, they utilise US foreign debt in their portfolios, but the key to profitability in this scenario lies in efficiently deploying the capital.

“Initially, there will be an increase in the number of shares, and immediate profitability might not occur. As profitability grows, EPS will even out or potentially grow as banks leverage the capital raised,” Fadipe said.

She also noted an alternative approach where banks avoid public offers, they utilise US foreign debt in their portfolios, but the key to profitability in this scenario lies in efficiently deploying the capital.

A Countercyclical Capital Buffer, to be determined by the CBN periodically taking into consideration the prevailing macroeconomic conditions and developments within the financial sector may also be required.

Fadipe of CSL noted that recapitalisation empowers banks to expand in size and strength, enabling them to withstand economic shocks and support larger enterprises.

“If they can actively raise capital, they could also increase profit,” she said.

However, she noted that banks, in pursuit of profitability, might increase risk, leading to the emergence of non-performing loans and provisions that could erode the top line.

She also added that another implication of recapitalisation is the potential for mergers and acquisitions, depending on the capital requirements set by Cardoso.

“Smaller banks unable to meet these requirements may face consolidation, reducing the overall number of banks in the market. This implies that only larger, well-capitalised banks will survive,” she said.

Others are improved access to credit, reduced risk of bank failures and stabilised financial markets.