Recapitalization: Will Tier 2 and 3 Banks Attain the New Financial Threshold?

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In March 2024, the Central Bank of Nigeria (CBN) raised the capital requirements for banks, which requires banks to increase their minimum paid-up capital and share premiums without relying on retained earnings. 

The recapitalization policy mandates banks with international licenses to meet a minimum capital of N500 billion from the N50 billion previously, N200 billion for national banks from N25 billion, and N50 billion for regional banks from N10 billion. 

With the deadline of March 31, 2026,  and less than 293 days to the deadline, the directive has paved the way for a transformative shift in the banking sector, raising critical questions about the survival of small banks and the implications on the Nigerian financial landscape.

While some tier 2 and tier 3 banks are yet to make any large movements towards meeting the capital threshold, some tier 1 banks like Zenith Bank Plc which raised N290 billion through a combined rights issue and public offer, which brought its total capital to N614.65 billion, surpassing the N500 billion benchmark, and Access Bank Plc has also met the CBN threshold.

Bank Executives Betting Big on their institutions

As the deadline draws closer, a notable trend has surfaced in the financial sector with bank executives and insiders buying large quantities of their banks’ shares.

This reflects growing confidence in their institutions’ future performance enough to back them financially which can also convince other investors to invest.

Recently, Tony Elumelu, chairman of the United Bank for Africa purchased 45 million shares worth N1.54 billion between May 22 and 23, 2025, and within a week later, he bought an additional share worth N43.9 billion between May 29 and 30, while encouraging other shareholders to invest their dividends in the company.

By investing their capital, executives demonstrate belief in their banks’ growth, which can also attract retail and institutional investors.

Strategies for Survival

To survive, tier 2 and tier 3 banks must adopt a strategy if they wish to remain in the Nigerian banking sector. The options for banks that will survive have been defined; to survive, you either raise capital, merge, or downgrade your operational license.

• Capital Raising: For tier 2 and tier 3 banks to survive, they need to meet the capital threshold set by the CBN to remain a player in the Nigerian financial sector. They can explore options such as raising capital through rights issues, private placements by targeting private equity investors, or public offers.

• Mergers and Acquisition: Tier 2 and tier 3 banks can decide to merge to share the burdens, as the banks combine resources to meet the requirements. However, mergers are expected to take place in the banking sector, just like what occurred during the 2004 recapitalization exercise, which reduced the number of banks from 89 to 25. A similar occurrence might take place, reducing the available options available to consumers

• License Downgrades: The CBN capital recapitalization policy gives room for institutions that are unable to meet the capital threshold to relinquish their license. For an international or national bank that cannot meet the capital requirement before the deadline, the bank can step down its operation to become a regional bank, thereby reducing its capital obligation.

Will small banks survive or become casualties of a transforming financial system?

Tier 2 and tier 3 banks’ survival relies on their ability to innovate and adapt to the changing banking sector.

Some banks may leverage partnerships, mergers, and acquisitions to boost their financial standing. Others might decide to downgrade their operations focusing on underserved markets to stay relevant post-recapitalization exercise.

Tier 2 and tier 3 banks face steep competition from bigger players in the sector, as investor confidence in smaller institutions remains shaky. While some banks may face becoming stronger and more competitive, others might have to take the hard route of downgrading their license or exiting the market.

The fate of small banks will largely be driven by the ability to innovate, adapt, and align their strategies with regulatory requirements and market demands.

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