…Ecobank only unaffected bank
Nigeria’s capital market will soon become a beehive of activities as deposit money banks, merchant and non-interest banks will begin to raise fresh capital in the region of over N3 trillion or explore the various options suggested by the Central Bank of Nigeria (CBN) if they intend to retain their operating licences in the country, The Nigerian Observer’s estimates show.
The CBN, through its Director, Financial Policy and Regulation Department, Haruna Mustafa, had last week instructed banks in the country to shore up their capital base, specifically focusing on their paid-up capital and share premium, within the timeframe of 24 months.
According to our analysis, the most affected deposit money banks in terms of the new capital requirement to meet the CBN mandate are the United Bank for Africa (UBA), First City Monument Bank (FCMB), Fidelity Bank, Guaranty Trust Holdings, and FBN Holdings.
Others are Access Holdings, Zenith Bank, Sterling Bank, Stanbic IBTC, Wema Bank, Unity Banks, among others.
At the outset of his administration, CBN governor, Olayemi Cardoso, had hinted at the need for banks to raise their capital base, attributing the suggestion to the floating of the naira which had impacted the capital base of banks in the country.
The Nigerian Observer’s analysis shows the exchange rate of the naira to the US dollar, for instance, had depreciated from an average of N460/$ in May 2023 to an average of N1,300/$ currently.
Using paid-up capital and share premium of the seven banks with international banking licences, the sum of their paid-up capital and share premium fell from $2.79 billion to $988.84 million using the two aforementioned exchange rates of the naira to the US dollar. This limits the ability of Nigerian banks to play at the international arena.
The new CBN mandate requires deposit money banks with international banking licence to have N500 billion; national licence N200 billion, and regional licence, N50 billion. Merchant banks are to have N50 billion each, while non-interest banks with national and regional licences are to have N20 billion and N10 billion, respectively.
On why the CBN singled out these types of capital, a senior financial analyst said the apex bank took that decision in order to prevent banks from using their FX revaluation gains.
“It is possible the CBN management wanted to dissuade banks from using their FX revaluation gains,” Saheed Bashir, CEO Meristem Securities, said.
To meet the minimum requirements, the CBN advised banks to consider any of the following options, namely, to inject fresh equity capital through private placements, rights issue and/or offer for subscription; mergers and acquisitions, as well as upgrade or downgrade their authorisation licences.
“The minimum capital specified above shall comprise paid-up capital and share premium only. For the avoidance of doubt, the new capital requirement shall not be based on shareholders’ funds. Additional Tier 1(AT1) capital shall not be eligible for the purpose of meeting the new requirement,” the CBN said last week.
Commercial banks in Nigeria have different authorisation licences. There is the international banking licence which allows any Nigerian bank to have branches within and outside Nigeria. Deposit money banks with international banking licences are Access Bank, Fidelity Bank, FCMB, First Bank of Nigeria, Guaranty Trust Holding Company, UBA, and Zenith Bank.
In the new requirement, each of the aforementioned banks is expected to shore up its capital base to N500 billion. The seven banks collectively have N1.28 trillion as their combined paid-up capital and share premium as against N3.7 trillion in line with the new requirement.
As of the last quarter of 2023, UBA had N115.82 billion as its paid-up capital and share premium. Meeting the new requirement means the bank must, in the next 24 months, put in place programmes that will get it additional N384.19 billion. This shortfall makes it the worst hit among the banks in the country with international banking licences.
FCMB is the second most affected by the new requirement. As of December 2023, the bank had N125.29 billion as its paid-up capital and share premium. Under the new regulation, the bank must raise additional N374.71 billion.
Fidelity Bank has a shortfall of N370.30 billion. As at the end of 2023, its paid-up capital and share premium amounted to N129.71 billion.
As of September 2023, GTB had N138.19 billion as its total paid-up and share premium capital, implying it must raise additional N361.81 billion unfailingly in the next 24 months.
Furthermore, FBN Holdings had N251.34 billion as its paid-up and share premium capital as of December 2023. Its shortfall amounts to N248.66 billion. Access Holdings had N251.34 billion as its total paid-up capital and share premium as of December 2023.
Zenith Bank, with a total of N270.75 billion paid-up capital and share premium as of September 2023, will need an injection of additional N229.75 billion during the timeframe for recapitalization.
Among the banks with national banking licences, Wema Bank is the worst affected. With N15.13 billion as its paid-up and share premium capital currently, the bank will have to inject additional N184.87 billion to retain its current licence. It is followed by Unity Bank which will require additional N183.67 billion during the timeframe. Sterling Bank will have to raise new N142.85 billion, while Stanbic IBTC will need additional N90.74 billion.
Jaiz Bank, with a national licence to operate non-interest Islamic banking operations in the country, will have to raise additional N1.38 billion.
The only bank which is not affected is Ecobank Nigeria. As a national bank requiring N200 billion to operate, the bank as of September 2023 had N353.51 billion as the sum of its paid-up capital and share premium.
FBNQuest Merchant Bank with a national banking licence had N8.2 billion as the sum of its share capital and share premium.
Meanwhile, Access Bank has indicated it will raise $1.5 billion in fresh capital in line with the new CBN mandate. The bank stated this in the notice sent to the Nigerian Exchange Group (NGX) last week.
