•No bank qualifies under new guideline 

•But ETI, Zenith, Access, First Bank, lead in eligible capital 

•7 qualify by adding retained earnings

•No need to panic –  ACAMB

By Emeka Anaeto, Business Editor and Peter Egwuatu

Banks in Nigeria may require up to N4.7 trillion to meet the recapitalization benchmark prescribed last week by the Central Bank of Nigeria, CBN.

Vanguards findings from the audited and unaudited financial positions of 12 leading banks in the Nigeria Exchange Limited indicated a funding gap of N2.8 trillion while others outside the Exchange is estimated at N1.9 trillion.

The CBN on March 28th announced the upward review of the minimum capital requirement for banks in the country.

The Apex bank mandated minimum capital of ¦ 500 billion, ¦ 200 billion and ¦ 50 billion for Commercial Banks with International, National, and Regional licenses respectively.

Likewise, the CBN also raised capitalisation baseline for Merchant Banks to N50 billion and Non-interest Banks to ¦ 20 billion and ¦ 10 billion for national and regional licenses respectively.

A breakdown of the cumulative figure shows that Ecobank Transnational Inc (ETI) has N353.3 billion Total Eligible Capital (TEC) living it with a funding gap of N147 billion, while Zenith Bank with TEC of N270.7 billion has a funding gap of NN229.3 billion as at September 2023 unaudited financial statement.

Access Bank which has the most current financial statement audited as at December 2023 is recorded TEC of N251.8 billion still has a funding gap of N248.2 billion, while First Bank which recorded a TEC of NN251.3 billion in its unaudited financial statement as aat September 2023 would require additional N248.7 billion to meet the new capital base.

TEC for all other banks are significantly below N200 billion leaving them with funding gaps ranging between NN90.7 billion and N480 billion under the new TEC.

However, analysts believe if CBN adjusts its prescription to accommodate Retained Earnings (REs) about seven banks would be comfortably above the new minimum capital base.

The seven banks include Zenith Bank with largest REs at NN893.9 billion as at September 2023, followed by UBA with N750.8 billion as at September 2023 and Access with N715.1 billion in full year 2023 audited financial statement.

Others are ETI, First Bank, GTB and Stanbic IBTC recording N683.1 billion, N675.1 billion, N424.5 billion and N309.6 billion respectively in their REs.

Industry analysts hinted they are expecting CBN to give more clarifications on the policy especially regarding the treatment of REs.

The policy simply excluded REs from the new capital composition without stating how the outstanding REs should be treated in the bank’s balance sheet.

The CBN specified that minimum capital for existing banks should comprise only paid-up capital and share premium.

It is believe that if the apex bank remains silent the banks may re-engineer their asset compositions by recapitalizing the REs to meet the new capital requirement. 

            

Commenting on the expected banks’ strategies for meeting the new capital base requirement, analysts at Afrinvest West Africa, a Lagos based investment house, stated: “This should necessitate capital raising efforts from both domestic and international markets. Assuming the re -engineering of retained earnings to bolster eligible capital levels (that is share capital and share premium as defined by the CBN for the recapitalisation exercise), our estimation indicates that approximately ¦ 901.8billion combined would be needed by Wema Bank, FCMB, Fidelity, Unity, and Sterling banks to reach new benchmarks.

“That said, we anticipate further clarification on the treatment of retained earnings from the CBN as implementation week commences.

“From our initial assessment, positives from the recapitalization drive includes strengthening the capacity of lenders to support credit creation in the real sector; the potential influx of capital into the domestic economy through offshore capital-raising endeavours; and the likelihood of the emergence of stronger and more resilient banking entities post-recapitalization.

“However, potential headwinds can materialise in form of the dilution of returns for shareholders; the risk of lenders inadvertently generating bad risk assets or engaging in high-risk behaviours to deploy additional liquidity; and the possibility of high industry concentration following consolidations, leading to oligopolistic influence”.

Though CBN did not give reasons for the recapitalization policy it is believed widely that it may aimed at mitigating the impact of external and domestic shocks at the backdrop of negative exchange rate movement and elevated inflation.

Meanwhile, for proposed banks (new banking license applications after April 1, 2024) the apex bank said the paid-up capital should meet new standards.

The recapitalization exercise is expected to commence from April 1, 2024, through March 31, 2026.

No need to panic –  ACAMB

Assuring banks stakeholders especially the depositors, the  Association of Corporate & Marketing Communication Professionals of Banks (ACAMB) stated that there is no need to panic over the recapitalisation of banks as announced by the Central Bank of Nigeria, CBN.

The Association said that it welcomes the release of the much-anticipated circular of the CBN on the banking sector recapitalization, while assuring that banks would meet the new capital base.  

In a statement signed by Rasheed Bolarinwa, President, ACAMB, said “This support underlines ACAMB’s belief that while Nigerian banks are globally regarded as safe, resilient and thriving; there is always room for growth”.

He stated: “The CBN circular on review of minimum capital requirement for commercial, merchant and non-interest banks over the next 24 months has laid to rest any anxiety about the intention, process and possible outcome of the new recapitalisation exercise.

“ The import of the recapitalisation announced is that Nigerian banks are safe and reliable but the apex bank in its developmental mandate, is leading the banks to strengthen their capacities to meet competitive domestic and global financial needs.  

“This overarching theme that runs through the circular and its explanatory notes further affirms the soundness of the banking sector, in line with several rating reports on Nigerian banks by leading local and international rating Agencies.

“We commend the CBN for the thoughtfulness it has put into the announced modality for the recapitalisation. ACAMB particularly note the distinctive definition of the new minimum capital base for each category of banks as the addition of share capital and share premium, as against the previous use of shareholders’ funds. We urge the public to take note of this change. As it stands, banks are on the same page and as such, there is no need whatsoever for any fear, as the banks have the capacity to meet the recapitalisation in line with allowable options stipulated by the apex bank.

“All facts point to a win-win for the Nigerian banks, the financial market and the economy under this recapitalisation.  

“The Nigerian capital market, where banks are the most influential group, has the depth to meet the capital requirements of banks. The extended timeline till 2026, provides ample opportunity for each bank to follow through its recapitalisation plan, without undue crowding effect.

“ With their background of good returns and liquidity, banking stocks are toasts of domestic and foreign investors. This pedigree, coupled with resilient performance of banks despite economic challenges, will come to the fore as investors know the recapitalisation means stronger banks and better returns.

“The banking industry will continue to work with financial authorities to build up the economy. This recapitalisation will put Nigerian banks in better stead to support the strengthening of the economy; the expansion of the real sector, and the building of bigger banking brands that can compete continentally and globally.  Banks will continue to cooperate with the CBN in the implementation of the recapitalisation programme.

“ACAMB shall also be engaging all stakeholders in order to ensure balanced and factual representation as the recapitalisation progresses. ACAMB reassures all depositors and shareholders to keep about their businesses with the Nigerian banks without fears.”