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Home » Why Fresh Banks Recapitalisation is on the Radar

Why Fresh Banks Recapitalisation is on the Radar

CBN Considers N500bn to N1trillion as new banks’ recapitalization

Techeconomy by Techeconomy
December 11, 2023
in Finance
0
Olayemi Cardoso, CBN, Banks Recapitalisation
Dr. Olayemi Cardoso, Governor of the CBN

Dr. Olayemi Cardoso, Governor of the CBN

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Report this morning indicates that the Central Bank of Nigeria (CBN) is considering raising banks capitalisation to between N500 billion and N1 trillion, those with knowledge of the proposal told Daily In­dependent at the weekend.

Dr. Olayemi Cardoso, Governor of the CBN, speaking at the 58th annual bankers’ dinner and grand finale of the 60th an­niversary of the Chartered Institute of Bankers of Nigeria (CIBN) noted that banks in the country will be directed to increase their capital base because they are not liquid enough to service the $1 trillion economy President Bola Tinubu is aiming for in the near future.

The last time CBN enforced banks to recapitalise was in 2004, when Charles Soludo, former CBN governor, raised their capital base from N2 billion to N25 billion. ­

As a result of the new recapitalisation plan, the apex bank is looking at between eight and ten big national banks, while others may opt for lower grades or oper­ate as fintechs.

Recapitalisation is the process of infusing funds into banks to enable them to meet the man­datory capital adequacy set by a central bank. It is also to stabilise a company’s capital structure and secure shareholders’ funds.

Financial industry analysts expect operators to begin, without delay, moves to raise fresh capital to bolster their respective institu­tions’ capital bases.

Market capitalisation, according to Stephen Iloba, a Lagos-based financial analyst, “is one of the indices to measure how strong a commercial bank is. Other measures of the strength of a bank are the value of its as­sets and depositors’ funds, among other things.”

The planned recapitalisation, among others, is to guarantee capital adequacy and to fortify the industry for future challeng­es.

Incidentally, plans by some banks to shore up their capital predated the CBN’s new pro­nouncement. FBN Holdings, Wema Bank Plc, and Jaiz Bank are already planning to shore up their capital bases.

These banks have proposed rights issues, while Fidelity Bank announced plans to raise additional capital via the issu­ance of 13,200 billion ordinary shares via a public offer and rights issues.

Looking at the 2023 third quarter results of some banks, there are signs that most banks are ready to play big in the fresh recapitalisation exercise.

Banks like Zenith Bank, Unit­ed Bank for Africa, Access Hold­ings, FBN Holdings, Ecobank, and GTCO Holdings have a base of over N1 trillion and may not have any serious issues with the recapitalisation exercise.

These entities are in a posi­tion to acquire smaller banks to spread their operations across the country.

As of the end of September 2023, Zenith Bank has a capital base of N1.92 trillion from N1.31 trillion in 2022, followed by Unit­ed Bank for Africa with a capital base of N1.778 trillion from N992 billion in 2022.

Access Holdings stands at N1.64 trillion from N1.231 trillion in 2022; FBN Holdings capital base rose from N1.287 trillion in 2022 to N1.37 trillion as of Septem­ber 2023.

Ecobank’s N1.37 trillion cap­ital base was an improvement from the N935 billion recorded in 2022, while GTCO Holdings, the parent group of GTBank, has a total equity of N1.273 trillion, a year-to-date increase of 36.7 per­cent from the N931 billion record­ed at the start of 2023.

With these six banks that ap­pear set for the challenge of a tril­lion-dollar economy, other banks may scramble for the few spaces in the new era of banking in the country.

While Nigerians await the position of the CBN on the re­capitalisation exercise, there are fears over whether the Nigerian capital market can repeat its feat of 2005, when many banks were able to raise money through public offers.

A cross-section of analysts is strongly of the opinion that the current state of the economy might make raising adequate cap­ital a bit challenging considering the weakness of the naira in the foreign exchange market.

Cyril Ampka, an Abuja-based economist, said the rate at which the naira was depreciating at the foreign exchange market will be the greatest impediment to the process.

He said, “The main reason for the call for the recapitalisation of banks is because of the state of the naira. If this continues, the recapitalisation exercise will not achieve the desired goal.”

[Source]

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