The Central Bank of Nigeria (CBN) has embarked on a comprehensive financial reform aimed at bolstering the stability and resilience of the nation’s banking sector.
This reform, unveiled on Thursday, March 28, 2024, by the CBN’s Acting Director of Corporate Communications, Mrs. Hakama Sidi Ali, introduces substantial increases in the minimum capital requirements for different categories of banks, tailored to the scope of their operations.
Under the latest policy directive, commercial banks holding international authorization are mandated to fortify their capital base to an impressive N500 billion. This significant augmentation underscores the CBN’s commitment to fortifying the financial robustness of banks operating on a global scale, ensuring they can weather economic uncertainties and mitigate risks effectively.
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Similarly, national banks are tasked with meeting a minimum capital threshold of N200 billion, reflecting the CBN’s concerted efforts to strengthen domestic financial institutions. Meanwhile, commercial banks with regional authorization must augment their capital to N50 billion, ensuring they possess adequate resources to support their operations within specific geographic regions.
Confirming these policy adjustments in Abuja, Mrs. Hakama Sidi Ali noted the critical importance of capital adequacy in safeguarding the integrity and stability of the banking sector. Mrs. Ali further disclosed that merchant banks now face a minimum capital requirement of N50 billion, while non-interest banks with national and regional coverage must elevate their capital to N20 billion and N10 billion, respectively.
Here’s the breakdown of the new capital requirement set by the Central Bank of Nigeria (CBN):
- Mega Banks (Operating all over Nigeria and internationally): N500 billion
- Smaller Commercial Banks (Operating all over the country only): N200 billion
- Regional Banks (Operating in some parts of the country only): N50 billion
- Merchant Banks: N50 billion
- Non-interest Banks (Operating all over Nigeria and internationally): N20 billion
- Non-interest Banks (Operating in the country only): N10 billion
It’s important to note that the new capital requirement will be comprised solely of paid-up capital and share premium. Shareholders’ Fund will not be considered in meeting this requirement.
The implementation timeline for these revised minimum capital requirements is stringent, with all banks mandated to comply within 24 months, commencing from April 1, 2024, and culminating on March 31, 2026.
To facilitate the implementation of the new capital requirements, the CBN has outlined various avenues for banks to raise fresh equity capital, including private placements, rights issues, offers for subscriptions, and strategic mergers and acquisitions. Notably, the CBN has emphasized that the minimum capital will exclusively comprise paid-up capital and share premium, with Shareholders’ Funds excluded from the calculation, ensuring a focus on tangible financial resources.
Moreover, strict adherence to the minimum Capital Adequacy Ratio (CAR) requirement applicable to banks’ license authorization is paramount, with banks falling short required to inject fresh capital to rectify their standing.
“Additional Tier 1 (AT1) Capital will not be eligible for meeting the new requirement. Despite the increase in capital, banks must ensure strict compliance with the minimum Capital Adequacy Ratio (CAR) requirement applicable to their license authorisation,” a circular from the CBN stated.
The recent circular from the Central Bank of Nigeria (CBN) outlined the minimum capital requirement for newer banks. It specified that the paid-up capital would serve as the minimum capital requirement for proposed banks. This requirement would apply to all new applications for banking licenses submitted after April 1, 2024.
The circular also mentioned that the CBN would continue processing all pending applications for banking licenses where a capital deposit has been made or an Approval-in-Principle (AIP) has been granted. However, it stipulated that the promoters of such proposed banks must bridge the gap between the capital deposited with the CBN and the new capital requirement by no later than March 31, 2026.
In the interim, the CBN mandated all banks to submit an implementation plan outlining their chosen methods for meeting the new capital requirement, along with the activities and timelines involved, by April 30, 2024.
Additionally, the CBN announced its commitment to monitoring and ensuring compliance with the new requirements within the specified timeframe.
In response to these regulatory changes, Nigerian banks are diligently evaluating their capital positions and formulating comprehensive implementation plans to meet the new requirements within the stipulated timeframe.
The CBN has reiterated its commitment to monitoring and enforcing compliance with the regulations, underscoring its dedication to ensuring the resilience and stability of the banking sector.
While members of the FUGAZ – mainly Zenith Bank, First Bank of Nigeria Holdings (FBNH), Access Bank, United Bank for Africa (UBA), and Guaranty Trust Bank (GTB), may find it to raise the required capital, others – including all tier 2 and tier 3 may not.
A new report from Ernst and Young earlier this month revealed that 17 out of 24 banks could potentially fall short of meeting the capital requirement set by the central bank if it is increased by 15-fold from its current N25 billion.
According to the report, many banks may need to consider mergers and acquisitions (M&A) to shore up their capital base, a strategy reminiscent of the consolidation witnessed during the last recapitalization exercise in 2004/2005, which saw the number of banks reduced from 89 to 25.