Bank recapitalisation: Credit rating firm backs CBN, projects N1.5trn capital inflows if Bank succumbs to pressure

Credit ratings agency, Agusto and Co. have backed the Central Bank of Nigeria (CBN) on its move to recapitalise Banks in the country.

Agusto and Co. stated that the depreciation in the value of the naira coupled with the increase in the number of banks resulting in a breach of the single obligor limit of 20 percent serves as enough reason for the proposed recapitalisation exercise.

It also made a projection of up to N1.4 trillion if the Apex Bank succumbs to pressure from Banks to include retained earnings in the calculation for minimum share capital for the financial institutions.

Experts and concerned Bankers have since the announcement made by the CBN called for the inclusion of retained earnings by the Apex Bank.

The agency in its perspectives on the new rule introduced by the CBN stated that if banks could exert pressure on the CBN to allow shareholders to fund or retain earnings in calculating their capital base, the expected inflow would be less than N1.5 trillion.

It stated, “Thus, we anticipate an inflow of circa N4 trillion to meet the new capital regulation. We anticipate significant pressure on the CBN to use the total shareholders’ funds for the computation of regulatory capital or at least to include retained earnings. Should the retained earnings be used for the computation, we expect a reduction in the capital inflow to circa N1.5 trillion.”

The credit firm also projected a paradigm shift in the banking industry the likes of those witnessed during the last recapitalisation exercise in 2004. It noted that the strong performance of banks together with the low valuation could lead to institutional investors flooding the sector.

The firm however did not rule out Mergers and Acquisition (M&A) for banks that could find it difficult to meet the apex bank’s capital requirement.