Five bank holding companies face N972bn capital raise under proposed CBN rules

Five Nigerian bank holding companies may need to raise a combined N971.764 billion in equity capital to comply with the Central Bank of Nigeria’s proposed capital requirements, Renaissance Capital Africa estimates.

 

The affected holding companies are Access Holdings Plc, FCMB Group Plc, First HoldCo Plc, Guaranty Trust Holding Company Plc and Stanbic IBTC Holdings Plc.

 

Renaissance Capital estimates that Access Holdings would require the largest capital raise of N656.037 billion, followed by First HoldCo with N135.033 billion, FCMB with N112.836 billion, GTCO with N56.019 billion and Stanbic with N11.839 billion.

 

The estimates are based on a base-case scenario in which the draft guidelines are implemented in their current form. Renaissance Capital also assumes that the CBN would permit banks to recall excess capital released as they downgrade their international banking licences to national licences, provided the capital retained within the national banking subsidiary is sufficient to cover its risk exposures.

 

The released capital could then be redeployed across the wider group rather than being stranded within the Nigerian banking subsidiary.

 

Paid-up capital refers to the amount of share capital that shareholders have actually paid into a company in exchange for shares. Under the proposed framework, the capital requirements would increase the amount of paid-up capital held at the holding company level to ensure that the parent company has sufficient capital coverage for its subsidiaries and group-wide exposures.

 

The estimated capital raises would have an uneven impact across the five banking groups. Access Holdings alone accounts for approximately 67.5 percent of the combined N971.764 billion requirement, while First HoldCo accounts for 13.9 percent, FCMB 11.6 percent, GTCO 5.8 percent and Stanbic 1.2 percent.

 

For Access Holdings, Renaissance Capital estimates that holding company paid-up capital would rise from N616.021 billion under the current guidelines to N1.272 trillion after the proposed guidelines are implemented. The paid-up capital of its Nigerian bank would remain at N594.823 billion, while the combined paid-up capital of its non-bank subsidiaries would remain at N18.588 billion.

 

The paid-up capital of its foreign subsidiaries, for which investment in the subsidiary is used as a proxy, would remain at N446.637 billion. The sum of all subsidiaries’ paid-up capital would therefore remain unchanged at N1.060 trillion.

 

Access Holdings’ holdco capital coverage ratio would rise from 0.6 times under the current guidelines to 1.2 times under the post-guidelines estimate.

 

FCMB’s holding company paid-up capital would rise from N512.344 billion to N625.179 billion, representing an estimated capital raise of N112.836 billion.

 

The paid-up capital of FCMB’s Nigerian bank would remain at N500.500 billion, while the paid-up capital of its non-bank subsidiaries would remain at N8.809 billion and that of its foreign subsidiaries at N11.674 billion. The sum of all subsidiaries’ paid-up capital would therefore remain unchanged at N520.983 billion.

 

FCMB’s holdco capital coverage ratio would rise from 1.0 times to 1.2 times.

 

For First HoldCo, Renaissance Capital estimates that the holding company’s paid-up capital would increase from N480.616 billion to N615.649 billion, requiring N135.033 billion in additional equity capital.

 

The paid-up capital of its Nigerian bank would remain at N500.027 billion, while that of its non-bank subsidiaries would remain at N13.014 billion. The Renaissance Capital figures records no paid-up capital for foreign subsidiaries, while the sum of all subsidiaries’ paid-up capital would remain at N513.041 billion.

 

First HoldCo’s holdco capital coverage ratio would rise from 0.9 times to 1.2 times.

 

GTCO’s proposed capital structure shows a different outcome. Its holding company paid-up capital would rise from N518.880 billion to N574.899 billion, implying an estimated capital raise of N56.019 billion.

 

However, the paid-up capital of its Nigerian bank would decline from N504.037 billion to N350 billion under the post-guidelines estimate. The paid-up capital of its non-bank subsidiaries would remain at N14.807 billion, while foreign subsidiaries’ paid-up capital would remain at N114.275 billion.

 

Consequently, the sum of all subsidiaries’ paid-up capital would fall from N633.119 billion under the current guidelines to N479.082 billion after the proposed guidelines. GTCO’s holdco capital coverage ratio would rise from 0.8 times to 1.2 times.

 

For Stanbic, holding company paid-up capital would increase from N255.006 billion to N266.845 billion, representing an estimated capital raise of N11.839 billion.

 

The paid-up capital of its Nigerian bank would remain at N202.469 billion, while that of its non-bank subsidiaries would remain at N19.902 billion. No paid-up capital is recorded for foreign subsidiaries, leaving the sum of all subsidiaries’ paid-up capital unchanged at N222.371 billion.

 

Stanbic’s holdco capital coverage ratio would rise from 1.1 times to 1.2 times.

 

The estimated capital raises are equivalent to varying proportions of the companies’ market capitalisations. Access Holdings’ N656.037 billion requirement is equivalent to 49.6 percent of its market capitalisation, while FCMB’s N112.836 billion requirement represents 16.3 percent.

 

First HoldCo’s N135.033 billion requirement is equivalent to 4.4 percent of its market capitalisation, while GTCO’s N56.019 billion represents 1.2 percent and Stanbic’s N11.839 billion represents 0.5 percent.

 

The estimates show that Access Holdings would face the largest absolute capital requirement and the highest requirement relative to market capitalisation among the five holding companies.

 

However, Renaissance Capital’s estimates are based on the assumption that banks will be able to recall excess capital released when they downgrade their international banking licences to national licences. The report assumes that the CBN would permit such capital to be redeployed across the wider group after ensuring that the national banking subsidiary retains sufficient capital to cover its risk exposures.

 

The final capital-raising requirements could therefore depend on the form in which the CBN’s proposed guidelines are ultimately implemented and how the regulator treats capital released through licence downgrades.

 

The apex bank will continue to strengthen its supervision of banks despite the successful completion of the banking sector recapitalisation exercise, Olayemi Cardoso, governor of the CBN, has said.

 

Cardoso said the CBN’s oversight of banks would not end with the recapitalisation exercise, which raised between N4 trillion and N5 trillion in fresh capital for the banking industry.

 

“Our oversight on banks does not stop at the fact that you have raised capital. No, it’s going to be continuous because we need a strong, resilient banking sector to be able to take us to where we want to go,” Cardoso said during a fireside chat with Frank Aigbogun, chief executive officer of BusinessDay, at the BusinessDay 14th annual CEO forum in Lagos.