Nigerian banks can compete better with new capital base – S&P Global

The increase in the minimum capital requirement for banks to operate in Nigeria can strengthen lenders competitive position against international and pan-African banking groups, S&P Global Ratings has said.

The Central Bank of Nigeria (CBN) had in a circular dated March 28 announced the review of the minimum capital requirements for banks as follows: N500 billion for banks with international authorisation, N200 billion for commercial banks with national authorisation, and N50 billion for banks with regional authorisation.

Merchant banks must have a minimum capital requirement of N50 billion, while non-interest banks holding national and regional authorisation must have N20 billion and N10 billion, respectively.

The CBN gave banks 24 months to strengthen their capital base by injecting fresh equity, consolidating, or downgrading their banking licence to meet the new requirements, rather than recapitalisation of retained earnings and reserves.

Read also: What CBN recapitalisation means for banks, economy

Analysts at S&P Global Ratings said in a new bulletin that the increase in the capital base will support banks’ capacity to absorb credit loss.

“The increase of banks’ minimum paid-up capital to Nigerian naira (NGN) 500 billion (approximately $380 million) from NGN25 billion will likely shake up the banking sector landscape and support banks’ credit loss absorption capacity,” they said.

The credit ratings firm said that despite 21 licensed banks in the country, only the top five account for about 70 percent of the system’s assets, and will accumulate a capital shortfall of about N1.5 trillion.

“According to third quarter 2023 data, we estimate that our rated banks’ capital shortfall will be approximately NGN2.5 trillion. Despite the 21 licensed banks in Nigeria, the top five banks account for about 70 percent of the system assets and accumulate a paid-up capital shortfall of close to NGN1.5 trillion,” it said.

S&P said the CBN directive was not surprising as Olayemi Cardoso, the governor, had warned banks to increase their capital base to improve their resilience to economic shocks and better position them to finance the economy.