Aduragbemi Omiyale
By Aduragbemi Omiyale
The decision of the Central Bank of Nigeria (CBN) to strengthen the banking system in the country through its recapitalisation policy has continued to receive applause from different quarters.
Recall that on March 28, 2024, after hinting last year that financial institutions may have to jack up their capital base, the CBN announced new minimum capital requirements for the sector.
It pegged N500 billion for banks with international operations, N200 billion for lenders with national licences, and N50 billion for regional banks.
The financial institutions were given 24 months to meet up with the new capital base but were given one month to produce a framework of how they intend to raise the funds.
Commenting on the development, S&P Global Ratings described the apex bank’s move as the right thing to do, particularly when the value of the Naira had been eroded since the last banking sector consolidation in 2005 when it was moved up to N25 billion.
In a note made available to Business Post, the rating agency said the options provided by the central bank were not bad, as lenders that are unable to meet the fresh requirements could merge or downgrade their operating license.
S&P Ratings noted that the CBN recapitalisation policy would “likely shake up the banking sector landscape and support banks’ credit loss absorption capacity.”
According to the central bank, apart from downgrading their banking licence, financial institutions could consolidate or strengthen their capital base by injecting fresh equity.
It ruled out the option of using retained earnings and reserves to shore up the capital base because of the sharp Naira depreciation in 2023, as the top-tier banks operate with a large buffer of reserves and retained profit compared with paid-up capital.
In its note, S&P Ratings estimates that “our rated banks’ capital shortfall will be approximately N2.5 trillion” based on the third quarter 2023 data.
“Despite the 21 licensed banks in Nigeria, the top five banks (Zenith Bank, Access Bank, GTBank, UBA, and First Bank, collectively known as ZAGUF), account for about 70 per cent of the system assets and accumulate a paid-up capital shortfall of close to N1.5 trillion.
“In our view, the recapitalization can also help to strengthen Nigerian banks’ competitive position against international and pan-African banking groups,” the rating firm stated.
