As Nigerian banks look towards a busy year for the ongoing recapitalisation exercise, there is general expectation that banks of all sizes will scale the capital base hurdle.
Finance and investment experts have said Nigerian banks have stronger chances of meeting their recapitalisation targets, with the proportion of standalone banks expected to be significantly higher than the 2004 exercise.
Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC) has confirmed that banks have so far raised some N1.7 trillion in new equity funds, in less than seven months of the current recapitalisation exercise.
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Already, three banks have met the new minimum capital requirements for their licences. Seven banks had floated offers, after the Central Bank of Nigeria (CBN) announced a review of minimum capital requirements for banks in 2024.
The CBN had in March 2024 released its circular on review of minimum capital requirement for commercial, merchant and non-interest banks. The apex bank increased the new minimum capital for commercial banks with international affiliations, otherwise known as mega banks, to N500 billion; commercial banks with national authorisation, N200 billion and commercial banks with regional license, N50 billion.
Others included merchant banks, N50 billion; non-interest banks with national license, N20 billion and non-interest banks with regional license will now have N10 billion minimum capital. The 24-month timeline for compliance ends on March 31, 2026.
Under the new minimum capital base, CBN uses a distinctive definition of the new minimum capital base for each category of banks as the addition of share capital and share premium, as against the previous use of shareholders’ funds.
While most banks have shareholders’ funds in excess of the new minimum capital base, their share premium and share capital significantly fall short of the new minimum definition. This implies that nearly all banks will need to beef up their capital base to meet the new definition of qualified capital.
Analysts said with the strong start and continuing investors’ appetite for banking stocks, banks are on stronger footing to retain their licences.
Stanbic IBTC Holdings Plc last week opened an application list for a N148.7 billion rights issue, in what promises to headline a busy year for the primary market.
Experts noted that banks have the advantages of enthusiastic existing shareholders and new investors, including foreign investors who have shown stronger appetite for Nigerian stocks in recent periods.
Most analysts expected well-managed mid-tier banks such as Polaris Bank to be able to achieve their recapitalisation targets in a competitive market given the size of portfolios of domestic and foreign investors seeking for substantial stakes in the banking sector.
Polaris Bank, in 2024, won several highly rated awards as the best in digital banking, mobile banking, micro, small and medium enterprises (MSMEs) lending and general ecosystem support to MSME.
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By the first eight months of 2024, Polaris Bank had surpassed its previous full-year profit before tax by more than 28 per cent, in what highlighted the resilience of the bank’s operations despite the headwinds.
Foreign portfolio investors (FPIs) participation in the Nigerian stock market doubled in 2024, with the stock market riding the bulls of domestic and foreign investors to a historic milestone of all-time highest turnover during the year.
Muda Yusuf, chief executive officer, Centre for the Promotion of Private Enterprise (CPPE), said there is no need for any anxiety about banks’ recapitalisation given the available options and the timeline given to banks.
He said rather than looking at sizes, the utmost concern of the banking public should be the quality of management of a bank.
He underscored the need for the CBN and the banks generally to give reassurance to the banking public on safety of their funds, irrespective of the category that a bank may fall into.
“At the end, it is the quality of the management of a bank that will determine the soundness of the bank and the safety of depositors’ funds. That, for me, is what is extremely important,” Yusuf said.
According to him, banks of all tiers and sizes stand the chance of exploring the best options suited for them under the recapitalisation, and that should serve as comfort to the banking public.
“I don’t see the recapitalisation being a problem especially with the options available to the banks. The good thing about the current recapitalisation exercise of the CBN is that there are options and secondly, there seems to be sufficient notice and time given for various players in the sector to determine the best option that suits them.
“It should be easy for any bank to be able to find its level without necessarily disrupting its activities or putting depositors’ funds at risk. What is important is that these banks need to take their decisions early and avoid last-minute rush to meet the CBN deadline, because that can create a lot of panic and it can send wrong signals to the economy and depositors. I think with the options, banks should not have a problem,” Yusuf said.
David Adonri, managing director, Highcap Securities, said technology and increasing foreign participation would support banking recapitalisation.
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The Nigerian Exchange (NGX) had in 2024 launched its NGX Invest, an innovative digital share offering platform for the distribution and subscription of public offerings and rights in the Nigerian capital market.
With few clicks, Nigerians and the global investing public can buy into share offerings at the Nigerian capital market under a fully automated share offering process. The paperless primary issuance market bridges geographical and other demographic barriers and opens up the underlying economic assets of the nation to all citizens.
Banks that had launched offers in 2024 had credited NGX Invest with a huge contribution to the success of their offers.
“The continuation of the banking recapitalisation exercise remains at the front burner of the primary market in 2025. Banks that approached the capital market in 2024 were successful in their capital raising transactions. Every organ of the capital market is again poised to support the recapitalisation programme of banks and other issuers coming to the market this year to access capital. As a result, the primary market will be a beehive of activities this year considering the increased number of issuers we are expecting. The capital market has the global reach and technology to drive the exercise successfully,” Adonri said.
Femi Ademola, managing director, AIICO Capital, Femi Ademola, said the positive disposition of foreign investors might be a major boost to the recapitalisation of the banks.
“The Nigerian market offers very attractive opportunities for investors now so we are seeing interests from investors that consider our assets to be cheap, when compared in dollar terms, so they may come in to invest to help the banks meet the capital requirements,” Ademola, a Chartered Financial Analyst (CFA), said.
He noted that the deadline is still more than one year away and the recapitalisation status of each bank should become clearer later this year.
“As we get to the middle of the year, it would be clearer which banks would be able to stand alone,” Ademola said.
He pointed out that while most banks have more than enough shareholders’ funds, the restriction of the capitalisation to share capital and the inability of banks to convert a sizeable part of the reserves to share capital is making it tough for banks to meet the capital requirement quickly.
Stakeholders believe the ongoing banking recapitalisation would further enhance the global competitiveness and sustainability of the Nigerian banking system.
Pius Olanrewaju, President, Chartered Institute of Bankers of Nigeria (CIBN), said with the early success of the ongoing banking recapitalisation, Nigerians banks are now in better stead to compete sustainably over the long-term.
He noted that the banking sector has demonstrated remarkable resilience, as evidenced by Gross Domestic Products (GDP) growth from 2.98 per cent in first quarter 2024 to 3.46 per cent in third quarter 2024.
According to him, the resilient contribution of banks to the economy has further highlighted the success of the ongoing recapitalisation exercise, positioning the financial industry for long-term sustainability.
Also, Sam Onukwue, chairman, Association of Securities Dealing Houses of Nigeria (ASHON), said the ongoing recapitalisation exercise would enhance the capacity of Nigerian banks to play increasingly dominant roles in Africa’s financial markets and compete for large-ticket transactions globally.
He said the decision of the CBN to increase the capital requirements for various banks was in the best interest of the banking sector and the Nigerian economy.
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According to him, the new minimum capital for various banks is in order given the level of risks that banks bear nowadays.
“I believe that the CBN has done the right thing if our banks should compete in the global market, including the African Continental Free Trade Area (AfCFTA). With the current inflation rate and exchange rate, it has become almost impossible for our banks to operate in line with new global minimum capital threshold
“Besides, the level of risks which the banks bear today has significantly been exacerbated by the current macro-economic vagaries. I also believe the apex bank is repositioning the banks to be able to finance the envisaged $1 trillion economy in the next seven to eight years. In the light of the foregoing, I have no doubt that the apex bank is fair enough to base the new share capital on the level of authorisation of each bank.
“The next thing is for every bank to justify why it should continue to operate in the banking sector. We must admit that various external and domestic factors have significantly impacted the Nigerian economy, necessitating an increase in minimum capital requirements for banks. This measure aims to fortify their capital base, enable them to absorb unforeseen losses and sustain their role in fostering growth and development,” Onukwue said.
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