Bank recapitalisation: CBN increases minimum capital base of Banks by eightfold

The Central Bank of Nigeria has issued a new directive on the recapitalisation of the capital base of banks in the country raising the minimum capital base eightfold from the previous N25 billion.

The move had been in the pipeline since the CBN’s Governors speech at the Bankers Dinner last year where he noted that it will form part of its efforts to strengthen their capacity to support Nigeria’s drive to become a $1 trillion economy by 2026.

The previous capital base stratified based on the type of banking license such as banks with regional, national and international licenses were expected to maintain a minimum capital base of N10 billion, N25 billion and N50 billion, respectively.

With the new circular the minimum capital base for commercial banks with international authorisation at N500 Billion, commercial banks with national authorisation is now N200 Billion, while the new requirement for those with regional authorisation is N50 Billion.

The Acting Director, Corporate Communications Department, Mrs. Hakama Sidi Ali made this known in a statement yesterday.

Mrs. Sidi Ali also disclosed that the new minimum capital for merchant banks would be N50 Billion, while the new requirements for non-interest banks with national and regional authorisations are N20 Billion and N10 Billion, respectively.

A circular signed by the Director, Financial Policy and Regulation Department, Mr. Haruna Mustafa, to all commercial, merchant, and non-interest banks and promoters of proposed banks emphasised that all banks are required to meet the minimum capital requirement within 24 months commencing from April 1, 2024, and terminating on March 31, 2026.

According to the circular, the move, initially disclosed by the CBN Governor, Olayemi Cardoso, in his address to the Annual Bankers’ Dinner in November 2023, was to enhance banks’ resilience, solvency, and capacity to continue supporting the growth of the Nigerian economy.

To enable them to meet the minimum capital requirements, the CBN urged banks to consider injecting fresh equity capital through private placements, rights issues and/or offers for subscription; Mergers and Acquisitions (M&As); and/or upgrade or downgrade of license authorisation.

Furthermore, the circular disclosed that the minimum capital shall comprise paid-up capital and share premium only. It stressed that the new capital requirement shall not be based on the Shareholders’ Fund.

“Additional Tier 1 (AT1) Capital shall not be eligible for meeting the new requirement. Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio (CAR) requirement applicable to their license authorisation.

“In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularise their position,” it added.

The CBN circular said the minimum capital requirement for proposed banks shall be paid-up capital, adding that the new minimum capital requirement shall apply to all new applications for banking licenses submitted after April 1, 2024.

It noted that the CBN would continue to process all pending applications for banking licenses for which a capital deposit had been made and/or an Approval-in-Principle (AIP) had been granted. However, it said that the promoters of such proposed banks would make up the difference between the capital deposited with the CBN and the new capital requirement no later than March 31, 2026.

The apex bank also directed the banks to submit an implementation plan (clearly indicating the chosen option(s) for meeting the new capital requirement and various activities involved with their timelines) no later than April 30, 2024.

The CBN also disclosed that it would monitor and ensure compliance with the new requirements within the specified timeline.

The plan to recapitalise banks is premised upon the recent devaluation of the naira in 2023. The exchange rate as of 2005 during the last exercise in 2005 stood at N132.9/$.

In the last few months, FBN Holdings, Wema Bank and Jaiz Bank had proposed Rights lssues, while Fidelity Bank announced plans to raise additional capital via the issuance of 13,200 billion ordinary shares via public offer and rights issue.

Some banks may depend on different recapitalisation options, which include mergers and acquisitions, initial public offerings, placements and/or right issues and undistributed profit despite financial soundness indicators showing that Nigerian banks were largely safe and resilient as of 2023.

Earlier, Ernst and Young had predicted that 17 out of 24 banks might not meet the capital requirement from the CBN if it is increased 15-fold from N25 billion.