Banks Face Tough Conditions In Recapitalisation Drive

Ongoing bank recapitalisation will not be business as usual, Central Bank of Nigeria (CBN) Governor Olayemi Cardoso said yesterday.

He hinted that the conditions will be tough to ensure that all banks that scale the hurdles will be strong enough to withstand the headwinds.

The banks should be able to drive the economic target of the government, which is to achieve a $ 1 trillion dollar Gross Domestic Product (GDP) mark by 2030.

The plan is to strictly scrutinise the financial institutions as they move towards recapitalisation.

CBN governor spoke in London at an event by the United Kingdom-Nigeria Chamber of Commerce.

His position was presented by Deputy Governor (Financial Systems Stability) Mr. Phillip Ikeazor.

Cardoso said: “The CBN will rigorously enforce our fit and proper criteria for prospective new shareholders, senior management and board members of banks.”

He added the CBN will ensure banks have sufficient capital to meet their operational needs and manage risks effectively.

Cardoso said the apex bank will scrutinise the financial health of the merged entities to ensure a realistic assessment of their financial position.

He reiterated that the core objective of the recapitalisation programme is “to trigger the emergence of stronger, healthier and more resilient banks.”

This, he said, aims to create a more robust banking sector capable of withstanding economic shocks and supporting the government’s ambitious goal of achieving a $1 trillion Gross Domestic Product (GDP) by 2030.

The CBN governor listed the anticipated gains of recapitalisation to include: strong banks that are expected to lend more money to businesses and individuals, stimulating economic growth; a more stable and secure banking system capable of attracting greater foreign investment; and improved financial health which will lead to a more stable foreign exchange market.

Others are stronger capital buffers that will allow banks to manage risks more effectively; improved financial health, leading to better credit ratings for Nigerian banks, making it cheaper to borrow money; diversified ownership base as the programme is expected to encourage broader participation in bank ownership; stronger oversight and stricter criteria that could lead to improved decision-making within banks and increased market volume and value that will give rise to a healthier banking sector and ultimately lead to a more vibrant stock market.

The CBN clarified that the exclusion of retained earnings from the minimum capital requirement is intended to simplify calculations and enhance transparency.

“This aligns with international standards like Basel III, which emphasise core capital elements to promote financial stability,” Cardoso said.

He pointed to the successful 2004/5 Banking Sector Reforms as a model for the initiative.

Those reforms, Cardoso noted, consolidated the industry, increased capital bases and enhanced resilience during the global financial crisis.

He also expressed confidence that the ongoing efforts will build upon the achievements and create a more robust and competitive banking sector in Nigeria.

The CBN on March 28 announced a two-year bank recapitalisation exercise which commenced on April 1 and is expected to end on March 31, 2026.

The recapitalisation plan requires a minimum capital of N500 billion, N200 billion, and N50 billion for commercial banks with international, national, and regional licenses.

The CBN also raised the capitalisation baseline for merchant banks (N50 billion) and non-interest banks (national: N20 billion and regional: N10 billion).

The apex bank further set an April 30 deadline for the recapitalising banks to submit recapitalisation plans.

Many lenders were able to beat the deadline and a few others are finalising their recapitalisation plans for submission to the regulator.

Many banks have already approached the domestic capital markets to raise new funds.

The options for the banks include private placement which allows lenders to seek new funds from pre-selected private investors, and rights issue which authorises them to invite existing shareholders to purchase additional new shares at a discounted price relative to the current market price.

Some banks are also raising new funds through the Holding Company (HoldCo) option, which allows them to raise debt through their HoldCo which can then be injected as equity capital in the bank.

The CBN asked banks to explore other options such as mergers/acquisitions or downgrade their licence.