Only Seven Nigerian Banks Will Meet CBN’s Capital Increase Criteria

The Nigerian banking sector faces a seismic shift as reports indicate that nearly two-thirds of existing Deposit Money Banks (DMBs) may struggle to meet the Central Bank of Nigeria’s (CBN) proposed new capital requirements.

According to a recent study by Ernst and Young titled “Navigating the Horizon: Charting the Course for Banks amid Plans for Recapitalisation,” if the CBN raises the capital base by 15-fold from the current N25 billion, only seven banks may survive the financial upheaval.

The move comes as part of the CBN’s efforts to fortify the banking sector’s capacity to bolster Nigeria’s economy, aiming to achieve a $1 trillion economy by 2026. Currently, the capital base requirement varies based on the banking license type, with regional, national, and international licenses mandating N10 billion, N25 billion, and N50 billion, respectively.

The last significant capital increase occurred in 2004, leading to a wave of mergers and acquisitions that culminated in the reduction of banks from 89 to 25. Now, nearly two decades later, the proposed hike in capital could trigger a similar consolidation, with dire implications for the industry landscape.

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Ernst and Young’s report underscores that despite the banking sector’s overall resilience, some institutions may need to explore various recapitalization options, including mergers, acquisitions, public offerings, and retained earnings, to weather the storm.

The looming recapitalization wave has prompted some banks to take proactive measures. FBN Holdings, Wema Bank, and Jaiz Bank have initiated Rights Issues, while Fidelity Bank plans to raise additional capital through public offers and rights issues.

However, experts like Dr. Muda Yusuf of the Centre for the Promotion of Private Enterprise warn that the current capital base is grossly inadequate in the face of currency depreciation. They advocate for a review of minimum capital requirements to align with prevailing economic realities.

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Professor Uche Uwaleke of Nasarawa State University urges a nuanced approach, emphasizing incentives over coercion in driving recapitalization efforts. While acknowledging the necessity of bolstering capital for economic growth, he warns against replicating past strategies wholesale, advocating for a more nuanced and incentivized approach.

As the banking sector braces for the impending changes, the fate of Nigerian banks hangs in the balance, with industry players and regulators navigating uncertain waters in pursuit of a robust and resilient financial ecosystem.