Ernst and Young Global Limited, a leading tax and advisory firm, has listed six strategies banks can deploy to meet the new minimum capital requirements by the Central Bank of Nigeria (CBN).
In its latest report, the tax firm noted that for banks to raise the estimated N4 trillion needed to bring fresh capital into the economy, Nigerian banks must adopt certain strategies to stay in business.
“The ability of Nigerian banks to emerge stronger during and after the recapitalisation exercise will be largely dependent on their strategy.
“Such a strategy will help them in determining the most efficient way to raise the needed fund to meet the new minimum capital requirements and articulate the implication of the additional capital on the banks’ operations,” it said.
EY noted that such a long-term strategy would incorporate a clear plan that articulates the intended usage of the capital raised to deliver adequate, risk-adjusted returns for the banks’ key stakeholders.
Quick access to capital market: For banks to emerge successfully during the recapitalisation process, quick access to the capital market is needed.
“Nearly N4 trillion will be raised across all banks as part of the recapitalisation exercise but the market does not currently have the bandwidth to mobilise such huge amount especially on the back of the high yield on debt instruments as well as similar capital raising plans by other companies in other sectors,” the assurance firm noted.
Avoid capital dilution of major stakeholders: Another strategy stated by EY is for banks to develop funding strategies to ensure that the banks consider their current capital structure in making a choice between the CBN-approved recapitalization options.
Develop impact assessment: Banks need to develop impact assessment as part of the required implementation plan to be submitted by the CBN.
Review governance structure: Banks need to review their current governance structure and ascertain if it is fit to accommodate the new capital structure.
Develop a holistic strategy towards further expansion: Nigerian banks with international banking licenses need to extract more value from their licenses by developing a holistic strategy around further expansion within Africa.
Carve out payment platforms: EY stated that banks (with a payment platform) that are currently under a holding company structure can consider the possibility of carving out their payment platforms to enhance value and assess same as additional source of capital funding.
The UK-based firm also highlighted capital allocation, risk-adjusted performance measurement, risk management consideration for lending in the current high interest rate environment to avoid non-performing loans and risk-based lending as ways raised funds can be efficiently used.
