Many industry stakeholders have thrown their weight behind the move by the Central Bank of Nigeria (CBN) to have deposit money banks in the country recapitalise in order for them to play major roles in the country’s quest to grow its economy to $1 trillion over the next seven years.
The CBN governor, Olayemi Cardoso, had hinted at the recapitalisation plan at the 370th Bankers’ Committee meeting, where he outlined the economic agenda of President Bola Ahmed Tinubu. He said for Nigeria to attain such a feat, the economy has to grow at a faster pace which commenced with the implementation of fiscal reforms, including the removal of subsidy and exchange rate unification.
“We need to ask ourselves: will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future? In my opinion, the answer is no, unless we take action,” Cardoso said.
“Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital,” he said.
The five tier-one banks in the country are Zenith, Access, UBA, GTB and First Bank. The tier-1 and tier-2 capital of the first-tier banks in Nigeria as of December 2022 compared to September 2023 shrank by 41 percent on the average in view of the exchange rate unification implemented by the CBN with the support of the Tinubu-led Federal Government.
As of December 2022, the average exchange rate stood at N448.55 to the US dollar, going by data provided by the CBN. As of September 30, 2023, however, the average exchange rate of the naira to the US dollar was N761.33.
“The devaluation of the naira combines with the projected growth of the GDP to USD 1 trillion to make recapitalisation by Nigerian banks imperative. It requires adequately capitalised financial institutions to propel significant economic growth,” Dr Godwin Ehigiamusoe, founder, LAPO Microfinance Bank, said.
“Recapitalisation will not be restricted to the commercial banking sector; it is expected to be carried across other critical sectors such as insurance, pension and health maintenance organizations. The development will enable financial institutions to make meaningful contributions to national development,” he said.
The five tier-one banks in Nigeria had a total of N4.79 trillion composed of N4.17 trillion tier-1 capital and N613.11 billion tier-2 capital. This amounted to $10.66 billion as of December 2022 compared to $6.28 billion as of September 2023.
By individual banks, Guaranty Trust Holdings had N797.77 billion worth of tier-1 and tier-2 capital comprising N790.01 billion tier-1 capital and N7.72 billion tier-2 capital. In terms of the exchange rates as of December 2022 and September 2023, GTB’s total tier capital declined from $1.78 billion to $1.05 billion during the period.
Zenith Bank had a total tier capital of N1.24 trillion as of December 2022, the second largest among the five first tier banks. By the two exchange rates of the naira to the dollar, this amounted to $2.77 billion as of December 2022 as against $1.63 billion as of September 2023.
Fatai Asimi, Managing Director, PAC Research, said recapitalisation would enable Nigerian banks to finance big ticket projects.
“The statement by the CBN that Nigerian banks should recapitalise is a welcome development and overdue on the back of recent naira exchange depreciation. This will enable banks to be able to finance big ticket items in their risk assets. This is more so because banks’ NPLs have gone up in recent years. With this development, we should expect share bonuses by next year that will herald new issues during Q2 and Q3 depending on the timeframe by the CBN,” Asimi said.
“There is a strong possibility of a spillover to other segments of financial services considering the determination of the current government to grow the size of the economy to about $1 trillion in the short to medium term,” he said.
United Bank of Africa’s tier-1 and tier-2 capital summed up to N787.89 billion as of December 2022, comprising N699.21 billion tier-1 capital and N88.68 billion tier-2 capital.
Converted to the two exchange rates, UBA’s tier capital amounted to $1.76 billion as of December 2022 as against $1.04 billion as of September 2023.
Access Bank Holdings had a total tier capital of N1.29 trillion as of December 2022, composed of N927.28 billion tier-1 capital and N365.43 billion tier-2 capital. By conversion, this amounted to $2.88 billion as of December 2022 compared to $1.70 billion as of September 2023.
FBN Holdings had N659.85 billion tier capital as of December 2022. This is composed of N581.49 billion tier-1 capital and N78.36 billion tier-2 capital. In terms of the aforementioned exchange rates, the total tier capital amounted to $1.47 billion as of December 2022 in contrast to $867 million as of September 2023.
While Nigeria’s Q3 GDP grew in real terms by 2.54 per cent, the nation’s finance and insurance sector’s sub-sectoral GDP grew by 21.37 per cent in Q1 2023; 26.84 per cent in Q2 2023, and 28.21 per cent in Q3 2023.
“The recapitalisation will further strengthen the capital buffers of the banking industry to withstand domestic and external pressures,” Dr Omobola Adu, an economic cum financial analyst, said.
“To achieve this, we expect to see a number of mergers, especially for the tier-two, banks to meet up with the CBN’s requirement,” Adu said.
