The Central Bank of Nigeria is the country’s apex bank, charged with the responsibility of ensuring a stable financial and banking system within the country.
Established in 1959, the CBN has over the years become pivotal to Nigeria’s stable economic standing while also ensuring a robust financial system. On March 28, 2024, the CBN issued a circular notifying commercial, merchant, and non-interest banks of the reviewed minimum capital requirements.
This review comes at a point where the country aims to strengthen its financial sector, including other pivotal areas of its economy, with a bid to meet its projected $1 trillion gross domestic product economy by the 3rd quarter of 2030.
This post seeks to offer all there is to know about the CBN’s recapitalization of banks in Nigeria.
The CBN issued a circular instructing all commercial, non-interest, and merchant banks in Nigeria to increase their capital bases to the new quoted minimum standards. This comes at an almost twenty-five year break from 2005, which was the last time the CBN recapitalized the capital base of banks.
The circular specifies varying capital bases for banks at the international, national, and regional levels. The increase is called the Banking Sector Recapitalization Programme by the CBN.
Bank | Authorization | Old Minimum Capital (NGN/Billion) | New Minimum Capital (NGN/Billion) |
|---|---|---|---|
Commercial Banks |
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Non-Interest Banks |
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Merchant Banks | National | 15 | 50 |
The CBN posits that existing banks must meet the additional capital raising in a period of 24 months from the date of the issuance, which is likely to end on March 31, 2026.
For Banks to meet this tight deadline for raising additional capital, the CBN suggests that Banks can either raise new capital through an offer for subscription, private placement, or a rights issue.
In addition, Banks can also opt to merge with one or more other banks to meet additional capital requirements. Lastly, Banks can also downgrade or upgrade their authorization levels.
We shall take a closer look at these suggested capital-raising steps by the CBN while detailing the pros and cons they possess.
This is perhaps the most convenient way for banks to raise additional capital. The process starts with Banks increasing their share capital through the creation of additional shares using an ordinary resolution passed by the Shareholders of the company.
Nonetheless, if the Bank is a public company (Plc), the Securities and Exchange Commission (SEC) must consent to the share capital increase. Once the share capital of the Bank can be increased, the bank can proceed with issuing the newly raised capital through a public offer, private placement, or rights issue.
A public Offer entails the Bank calling on the general public to subscribe to its shares; this can be done through the stock exchange or other exchanges. Private Placements are a bit different from public offers; private placement entails the sale of shares to private persons sourced by and known to the company.
Unlike the public offers, where the company calls on the general public, some of whom they do not know personally, to subscribe to the shares of the company. Rights issue occurs when the company sells new shares to the already existing shareholders of the company in line with their present shareholdings of the company’s shares.
Banks could opt to merge with other banks to boost their capital structure in line with the new CBN policy. As with offering new shares, the CBN must provide consent for the merger. The most recent acquisition in the Nigerian banking sector was the acquisition of Union Bank by Titan Bank.
This is perhaps a last resort to the recapitalization process; if a bank fails in the first two options, it can then opt to downgrade.
Every bank is measured on specific grade levels known as authorizations; a bank could be either international, national, or regional. Depending on the authorization the bank possesses, the bank would have a higher capital requirement.
Banks can downgrade to a lower authorization to meet capital requirement demands by the CBN. For instance, an international authorization level bank can downgrade to a regional authorization level to meet the lower capital requirement needed later.