Listed Banks Need N2.8 trillion to Meet New Capital Base
Nigerian listed deposit money banks would require N2.8 trillion to meet recapitalisation requirement of the apex bank, Lagos headquartered investment banking firm Afrinvest Limited said in its latest update.
The Central Bank of Nigeria (CBN) has recently directed deposit money banks to upgrade their capital base in multiple folds having dropped significantly in dollar terms due to negative exchange rate movements.
The directive, according to analysts would trigger merger and acquisition festival across the sector with an expectation that vulnerable lenders would be consumed in the next 24 months. The minimum capital requirement for Nigerian lenders faces the first time since 2005 consolidation program. Kebbi Govt. Approves N3.34bn Subsidy for 3,344 Prospective Pilgrims
Within the next two years, banks with international licenses have been asked to increase their capital base to N500 billion. National lenders are expected. Commercial banks with national operations are expected to push their capital base to N200.0 billion while N50.0 billion is considered sufficient for regional players.
Also, the regulator raised capitalisation baseline for Merchant banks in the country to N50 billion while Non-interest Banks are expected to increase their funding base to N20 billion for national operations and N10 billion for Regional operations.
According to the directive posted on its website, the CBN said minimum capital for existing banks should comprise only paid-up capital and share premium.
It added that from April new banking license applications paid-up capital should meet new standards. The recapitalization exercise is expected to commence from April 1, 2024, through March 31, 2026.
In its update, Afrinvest Limited estimated that listed commercial banks, excluding Union Bank, would require a combined N2.8 trillion to meet the new baseline capital requirements.
The firm said in its update that this should necessitate capital raising efforts from both domestic and international markets.
“Assuming the re-engineering of retained earnings to bolster eligible capital levels our estimation indicates that approximately N901.8 billion combined would be needed by Wema, FCMB, Fidelity, Unity, and Sterling banks to reach new benchmarks.
The investment banking firm anticipates further clarification on the treatment of retained earnings from the CBN as implementation week commences.
“From our initial assessment, positives from the recapitalization drive include strengthening the capacity of lenders to support credit creation in the real sector, the potential influx of capital into the domestic economy through offshore capital-raising endeavours and the likelihood of the emergence of stronger and more resilient banking entities post-recapitalization.
“However, potential headwinds can materialise in the form of the dilution of returns for shareholders, the risk of lenders inadvertently generating bad risk assets or engaging in high-risk behaviours to deploy additional liquidity, and the possibility of high industry concentration following consolidations, leading to oligopolistic influence”, Afrinvest said.
FBN Holdings’ total eligible capital totalled N251.3 billion based on its latest unaudited report for the fourth quarter of 2023. The Elephant brand will require about N249 billion capital injection to meet the apex bank’s new capital requirement.
UBA would need N384.2 billion over the next 24 months to shore up its capital position to be able to operate with an international licence. The Pan African lender’s total eligible capital is N115.8 billion based on Q3 results.
GTCO would need about N362 billion over the same period to meet the fresh capital demand for international banking license operations. The Holdco has N138.2 billion eligible capital based on the apex bank requirement, details from its Q3 results for 2023 revealed.
Access Corporation Plc, Nigeria’s largest lender by assets has N251.80 billion total eligible capital which requires the group to raise N248.20 billion in the next 24 months.
Zenith Bank Plc would need to inject more than N229 billion to meet the new capital requirement over the next 24 months. The group is planning to transcend to Holdco like its rivals in the banking space. Zenith Bank currently has about N271 billion in total eligible capital based on its Q3 earnings results.
FCMB Group would require about N375 billion capital raise to meet the new capital base. The group’s total eligible capital as per CBN retained earnings exclusion settled at N125 billion, according to its latest financials.
Fidelity Bank Plc needs more than N370 billion to meet up the new capital demand. The bank’s total eligible capital settled at N130 billion as of December 2023. The Tier 2 lender operates international banking licenses and thus is required to meet N500 billion capital base by 2026.
Banks operating at the national level like Stanbic IBTC, Sterling, Wema and Unity Bank Plc are expected to raise bolstered their capital to N200 billion.
Stanbic IBTC requires about N91 billion to meet N200 billion capital base. Sterling Bank need about N143 billion while Wema Bank would require about N185 billion. Unity Bank Plc would require N184 billion to meet its capital requirement.
