Sub-Saharan African Banks Facing Higher Paid-In Capital Requirements
Most sub-Saharan African banks will need to meet higher absolute capital requirements through capital raisings, earnings retention or mergers, Fitch Ratings says in a new report.
The requirements, announced by several regulators, will reduce credit risks, encourage consolidation, especially among smaller and usually weaker banks, and support credit and economic growth.
Requirements have been introduced in Angola, Burundi, Ethiopia, Kenya, Mauritania, Nigeria, Sierra Leone, Uganda and the West African Economic and Monetary Union (WAEMU) countries. The latter comprise Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.
Requirements differ across jurisdictions, with most regulators increasing minimum paid-in capital, which includes only share capital and share premium.
Banks can raise fresh capital, merge with other banks or, in some cases, downgrade their licence to meet the new requirements. Most regulators allow the inclusion of retained earnings. Additional Tier 1 or Tier 2 capital instruments are not permitted to achieve compliance.
The magnitude of the increase is most consequential in Nigeria, particularly given that banks are not allowed to use retained earnings.
Nigeria’s requirements are by far the highest on the continent (an equivalent of USD348 million for banks with foreign operations) and have forced even domestic systemically important banks to raise capital.
Most Tier 1 and Tier 2 banks in other markets were already compliant with the requirements at the time of their announcement or will be able to comply by building up capital internally.
“We expect consolidation among smaller and usually weaker banks, where capital injections and earnings retention will be insufficient to achieve compliance,” Fitch said. Oando Plc: Resilient Energy Group Faces Earnings Storm
