Six Merchant Banks Shop for N230bn to Meet New Capital
Six merchant banks operating in Nigerian have less than two years to shop for N230 billion to meet the recapitalization deadline set for first quarter of 2026.
The central bank directed all banks to increase their capital base amid a drive toward a $1 trillion balance sheet economy. The last banking recapitalization was executed in 2005, when commercial lenders were required to attain a minimum base of ₦25 billion, which was equivalent to US$189 million.
In dollar terms, this amounts to US$38.75 million as of 2023, an erosion of US$150.25 million in 18 years, FSDH said in a research note.
Industry data showed that merchant banks were required to maintain a minimum paid-up share capital of ₦15 billion. Nigeria’s weak local currency has, however, reduced its value in the dollar term.
In its new guideline, the Central Bank of Nigeria (CBN) mandates that merchant banks should increase their current share capital and share premium to ₦50 billion. “A review of the share capital and premium of all merchant banks shows an average share capital of ₦11 billion. According to available financials, there is an industry shortfall of ₦229 billion”, according to FSDH Research.
This amounted to $176 million at an exchange rate of ₦1,300/$, the firm added. Like their commercial bank counterparts, merchant banks are unable to rely on their substantial retained earnings to cover the funding shortfall due to the restriction on the capital raising exercise to share capital and share premium.
FSDH stated that with none of these banks listed on the Nigerian Exchange, the plausible source of funding could be equity injections via private placement or mergers and acquisitions. Banks that are affiliated with international firms, such as Rand Merchant Bank, could take advantage of capital injections from parent companies, the firm added.
Analysts said that, while merchant banks are much smaller than national commercial banks in Nigeria, the recapitalization exercise is necessary to strengthen their contribution to trade facilitation and infrastructure development in the Nigerian economy.
FSDH Merchant Bank, which has the highest funding gap, would need to raise N47.6 billion to retain its license by the end of the first quarter of 2024, according to the report. FBNQuest Merchant Bank requires N41.8 billion to meet the recapitalization requirement in less than 2 years, followed by Coronation Merchant Bank’s N41.3 billion funding gap.
Nova Merchant Bank Limited is expected to raise additional capital worth N34 billion, Greenwich Merchant Bank would require N32.3 billion; and Rand Merchant Bank is expected to increase its capital base by N32 billion to meet the new requirement.
Rand is currently the most capitalised in the segment. The merchant lender’s combined share capital and premium settled at N18 billion, as per its financial statement for 2021.
Greenwich’s share capital and premium was N17.7 billion based on its financial statement for 2021. Nova’s financial report put its share capital and premium at N16 billion, while FBNQuest summed up to N8.2 billion. #Six Merchant Banks to Shop for N230bn in 2-Year
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