As Nigerian banks brace up for new CBN capital base
Last year, the governor, Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso announced to the banking community that Nigerian banks should brace up for a new capital base. Dominion Adebisi writes on the current status of leading banks and what is expected of other banks.
The governor of apex banking regulating body, Cardoso had asked, “Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future?”
He expressed further that, “In my opinion, the answer is “No!” unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital.”
Numerous reports revealed that CBN is considering raising banks capitalisation to between N500 billion and N1 trillion this year.
Recapitalisation is the process of infusing funds into banks to enable them to meet the mandatory capital adequacy set by a central bank. It is also to stabilise a company’s capital structure and secure shareholders’ funds.
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A check by our correspondent revealed that Zenith Bank Plc, United Bank for Africa Plc, FBN Holdings Plc, Ecobank Transnational Incorporated (ETI), Guaranty Trust Holding Company Plc (GTCO) and Access Holdings Plc have over N1trillion in total equity as of nine months ended September 30, 2023.
Zenith Bank closed September 30, 2023 with N1.9trillion total equity from N1.31trillion reported in 2022, while UBA declared N1.78trillion total equity as of September 30, 2023 from N922.1billion reported in 2022 full financial year.
As Access Holdings announced N1.64trillion total equity as of September 30, 2023 from N1.23trillion reported in 2022, FBN Holdings Plc declared N1.37trillion total equity as of nine months ended September 30, 2023 from N995.74billiion in 2022.
In addition, Guaranty Trust Holding Company Plc reported N1.27trillion total equity in the period under review from N931.15billion in 2022, as Ecobank Transnational Incorporated posted N1.34trillion total equity as of September 30, 2023 from N934.7billion in 2022.
The only financial institution with deficit in total equity is Unity Bank Plc. The retail bank reported N190.22billion as of September 30, 2023 from N274.95billion deficit in 2022.
Providus Bank Limited, a commercial bank founded in 2016, was reported to have taken bold steps to acquire majority stake in Unity Bank, as part of the former’s business expansion plan.
Unity Bank been struggling to beef up its minimum capital requirement since 2017, has termed a business combination, was being monitored by the CBN.
The CBN in 2004, announced the recapitalization of banking sector from N2 billion to N25 billion with effect from 2005. The initiation of increasing the banks minimum capital base to N25billion in 2006 led to a remarkable reduction in number of banks from 89 to 24.
Some of the banks merged and some were completely taken over by the stronger banks.
As of September 30, 2023, Stanbic IBTC Holdings Plc, Fidelity Bank Plc, FCMB Group Plc Sterling Financial Holdings Company Plc and Wema Bank Plc are listed banks the total equity below N500biilliion.
Only Fidelity Bank and Wema bank have pursed new capital raising from their shareholders.
Fidelity Bank had concluded plans to raise about N32 billion from its existing shareholders in the first tranche of a recapitalisation that may see the bank raising more than N160 billion in new equity funds.
The Managing Director, Fidelity Bank, Mrs. Nneka Onyeali-Ikpe stated that the bank was growing in leaps and bounds and needed to expand its capital base to take advantage of emerging opportunities.
“We will also use the additional capital to enhance our technology infrastructure to enable us to serve more customers,” Onyeali-Ikpea added.
For Wema Bank, the management plans to execute a share placement to raise N40 billion in a move to scale total equity to N160 billion.
Stakeholders welcome CBN’s directive
Industry analysts expect operators to begin, without delay, moves to raise fresh capital to bolster their respective institutions’ capital bases.
Reacting to banking sector recapitalisation, Nigeria’s first professor of capital market, Prof. Uche Uwaleke welcomed the banking sector recapitalisation move by the apex bank, stressing that capital is needed to finance big-ticket projects especially when the government is targeting a $1 trillion economy in a few years’ time
Uwaleke, who is also the President of the Capital Market Academics of Nigeria, however, expressed that, “I think the strategy should be somewhat different from the approach adopted in 2005. It should be more about incentives than coercion.”
He said some Deposit Money Banks (DMBs), especially FBN Holdings Plc Access Bank Plc, Zenith Bank Plc, Guaranty Trust Holding Plc, and UBA are already making efforts to increase their capital base.
He added that “The CBN can use prudential guidelines to strengthen the present tiered arrangements. The use of the CAR (the ratio of a Bank’s capital to risk weighted assets) is a good example.
“The apex bank can also use differential cash reserve requirements as well as preferential participation in the forex market for well capitalised banks as some of the incentives.
“For whatever it is worth, smaller banks playing at the regional level should not be regulated out of existence.”
The CEO, Wyoming Capital and Partners, Mr. Tajudeen Olayinka, said, “Since new capital requirement is not yet known to the banks, it is too early to expect weird reactions to the plan, more so that CBN intends to engage stakeholders in a robust discourse before coming up with any figure.
“So, market is yet to pick up serious reactions to the plan.”
Capital market analyst and stockbroker, Mr. Charles Fakrogha, also welcomed the banking sector recapitalisation, stressing that the exercise is long overdue.
He, however, expressed that rather than CBN recapitalising the sector, the apex banking regulating body could have strengthened the sector’s corporate governance.
Fakrogha in his words said, “Financial sector, most especially the banks have always dominated the stock market. Most Tier-1 and Tier-2 banks have exceeded whatever consideration the CBN maybe considering right now. N25billion of is now N2.5billion looking at the exchange rate. Having direct impact on the stock market is what we cannot say right now.
“On a personal note, it is not about the recapitalisation that is the main issue affecting the sector but corporate governance and running these banks ethically.
“The last exercise 2015-2016 when we witnessed the emergency of merger banks but at the end of the day, some banks went down. It is corporate governance issue that CBN should be looking at right now. Let’s have professionals running our financial institutions and let the apex bank be up and running with their operations.”
