Nigerian Giant Banks in a Rush to Raise Funds Before CBN's Recapitalization Deadline.

Nigerian banks, under CBN, are facing a capital rearrangement and have predicted plans to raise about $3.03bn (N3.46tn) in fresh capital.

In March, the Central Bank (CBN) significantly raised the minimum capital requirement, especially for international commercial banks, which now need ₦500 billion.

CBN Gives Banks A Two Year Window To Align To The Guidelines

According to the CBN, “The prevailing macroeconomic challenges and headwinds occasioned by external and domestic shocks have underscored the need for banks to raise and maintain adequate capital to enhance their resilience, solvency, and capacity to continue to support the growth of the Nigerian economy.”

All banks have a two-year window, from April 1, 2024, to March 31, 2026, to meet the new targets. The CBN suggests various methods for banks to raise capital, including issuing new shares, mergers, and acquisitions, or even adjusting their license type.

Top Banks Swings into Action To Align With New CBN Guidelines

At least two of the financial institutions, FBN Holdings and GTCO, announced their plans to raise fresh capital last week. Access Holdings said it would raise capital in both naira and US dollars.

Access Holdings, the parent company of Access Bank, unveiled a $1.8 billion fundraising plan (₦2.09 trillion) through bonds or share sales. Also, an additional $287 million (₦399.9 billion) is to be raised from shareholders through a rights issue.

Additionally, GT Bank announced plans to raise $750 million, while First Bank Holdings is seeking an additional ₦300 billion.

Professionals Speak On the New Guidelines

Uche Uwaleke, capital market professor and president of the Association of Capital Market Academics of Nigeria stated CBN recapitalization was a good one.

He said, “The idea of recapitalization of banks is a welcome one. Capital is needed to finance big-ticket projects, especially when the government is targeting a $1tn economy in a few years. However, I think the strategy should be somewhat different from the approach adopted in 2005. It should be more about incentives than coercion.”

He emphasized that the new regulations were forced on the Banks, and such rules take time before it is achieved. Uche pointed out that there will be a lot of merging between banks to elevate the pressure from the apex bank.

Also, Capital market analyst, Ambrose Omorodion, said on Punch, “Mergers will be for tier-2 banks. The bigger banks will likely go for the small banks to increase their operational base across the country and beyond.”

Several small capitalized banks may struggle to follow CBN guidelines, consequently, leading to increased merging. However, this would result in a more robust banking sector, with higher barriers to entry and also, a greater economies of scale, and stronger long-term profitability.

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