Nigerian commercial banks are poised for significant capital restructuring as they face a stringent directive from the Central Bank of Nigeria (CBN) to raise over N3 trillion in fresh equity. This mandate is aimed at ensuring that banks maintain a strong capital base in line with regulatory requirements, and to secure their operating licenses. The new capital requirements affect deposit money banks, merchant banks, and non-interest banks, which will be required to shore up their capital within a 24-month period.
The directive, which was communicated by the CBN’s Director of Financial Policy and Regulation, Haruna Mustafa, specifies that banks need to increase their paid-up capital and share premium. The rationale behind the CBN’s move stems from the challenges posed by currency depreciation, particularly the devaluation of the naira, which has put pressure on banks’ capital reserves. The naira’s exchange rate has sharply dropped from N460 to N1,300 per US dollar within the year, resulting in a substantial reduction in the dollar value of Nigerian banks’ capital.
Under the new guidelines, banks with international licenses are required to raise their capital to N500 billion, while those with national licenses must raise N200 billion, and regional licenses must meet N50 billion. Additionally, merchant banks and non-interest banks must adhere to specific capital thresholds. This adjustment aims to prevent banks from relying on foreign exchange revaluation gains and encourages a more sustainable approach to capital accumulation.
The move particularly affects key players like the United Bank for Africa (UBA), First City Monument Bank (FCMB), Fidelity Bank, Guaranty Trust Holdings, and FBN Holdings, all of which face significant shortfalls in meeting the new capital requirements. Among these, UBA is the hardest hit, requiring an additional N384 billion, while FCMB and Fidelity Bank face deficits of N374 billion and N370 billion, respectively.
In response to the new policy, banks are exploring several options, including private placements, rights issues, and mergers and acquisitions. Some institutions, such as Access Bank, have already announced plans to raise substantial capital, with Access aiming for $1.5 billion in fresh equity.
Interestingly, one bank, Ecobank Nigeria, remains unaffected by the new regulations. The bank’s capital base exceeds the required N200 billion for national banks, positioning it well ahead of its peers.
This regulatory overhaul signals a major shift in Nigeria’s banking sector, with the CBN pushing for greater capital adequacy to enhance financial stability and support economic growth. The initiative is expected to have long-term benefits, particularly in improving banks’ ability to absorb shocks and engage in more substantial international and local business operations. The ongoing adjustments reflect the broader challenges facing the Nigerian financial landscape, including fluctuating exchange rates and the need for increased investor confidence in the banking system.
