CBN increases capital base of Nigerian banks to N200bn, N50bn

..Sets 24 months deadline for recapitalisation

..It’ll strengthen Nigeria’s financial system, potentially boost to stock market- Prof Uwaleke

By Motolani Oseni

The Central Bank of Nigeria CBN has set new minimum capital requirements for Nigeria banks. While the new minimum capital base for commercial banks with national authorisation is now N200 billion, the new requirement for those with regional authorisation is N50 billion.

The apex bank Ag. Director Corporate Communication, Mrs Sidi Ali, who made the disclosure on Thursday, explained 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, the 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.

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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 upgrades or downgrade of license authorisation.

It stressed that the new capital requirement is not 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.

Meanwhile, the CBN said all banks are required 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.

Commenting on the new minimum capital requirements for banks, Professor of Finance and Capital Market, Prof Uche Uwaleke, said that it is a welcome development that will help strengthen the country’s financial system and a potential boost to the stock market

According to him, given the naira devaluation following the unification of exchange rates, the new calibrated minimum capital requirements seem okay unlike the uniform capital base of N25 bn stipulated in 2005.

He said: “Shareholders’ Funds comprise Paid share capital plus reserves.

“If my memory serves me right, this was permitted in 2005 but now disallowed possibly from the experience of the last exercise.

“I believe the FUGAZ (FBN, UBA, GTB, Access and Zenith) banks with international authorization will have no difficulty meeting this requirement.”

He noted that the stock market (Option 1) presents the most feasible option as few will likely go the M&A route. Access Bank has already announced it is raising N365 billion via the Rights issue.

“I also think the 2-year period allowed is sufficient to implement recapitalisation. A number of Banks including FBN, Access and Fidelity had already commenced the recapitalisation process before now, especially since the CBN Governor announced in November last year.

“I equally think that since the new capital base is based on the type of authorization (International, National or Regional), the CBN may consider applying a differentiated CRR according to the category of license instead of a uniform rate (currently 45%) for commercial banks.

“In view of the young age of Non-Interest Banks in Nigeria, they should be allowed a longer period, say, 3 years to meet the minimum capital requirements”, he added.