As the Central Bank of Nigeria’s (CBN)s proposal to initiate a new banking sector consolidation raises concerns among some industry operators, findings indicate that major banks with foreign subsidiaries currently control N9.6 trillion capital base.
This is just data compiled by the papers showing that five key banks currently have capital above N1 trillion each.
An analysis of the current capital base data of leading commercial banks in Nigeria revealed that the proposed consolidation, which is yet to be fully conceptualized by the apex bank, will most likely affect national, regional and merchant banks.
A number of the national, regional and merchant banks have not grown their capital base over the years in the manner their counterparts with foreign subsidiaries have grown theirs.
The CBN Governor, Olayemi Cardoso, had on Friday in his keynote address at the Bankers’ Dinner said the apex bank would be asking banks to raise their capital base.
He premised the need to increase the bank’s capital base on servicing the $1tn economy projected by President Bola Tinubu as well as the effect of currency devaluation on bank operations.
He said, “In my recent speech at the 370th Bankers’ Committee meeting, I highlighted the economic agenda of President Bola Ahmed Tinubu’s administration. The administration, as outlined in the widely circulated Policy Advisory Council report on the national economy earlier this year, has set an ambitious goal of achieving a Gross Domestic Product (GDP) of $1tn over the next seven years, with clearly defined priority areas and strategies. Attaining this substantial target necessitates sustainable and inclusive economic growth at a significantly higher pace than current levels. The administration has already commenced this journey through fiscal reforms, including the removal of petrol subsidies and the unification of the foreign exchange market rate.
“Considering the policy imperatives and the projected economic growth, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy. It is crucial to evaluate the adequacy of our banking industry to serve the envisioned larger economy. It is not just about its current stability. We need to ask ourselves, can Nigerian banks have sufficient capital relative to the finance system needs in servicing a $1tn economy shortly, in my opinion, the answer is no, unless we take action. As a first test, the central bank will be directing banks to increase their capital.”
However, findings indicate that seven tier-1 banks seem ready for the imminent recapitalisation exercise.
Findings showed that the seven leading banks in the Nigerian banking sector pooled N9.6 trillion as the capital base as of the end of the 2022 financial year.
Zenith Bank, according to information obtained from Statista, emerged as the most capitalised bank in Africa’s largest economy with N2.07tn while Access Bank came next with N1.92tn.
FBN Holdings stands strong with N1.78tn with GTCO on the fourth position with N1.37tn, followed closely by United Bank for Africa Plc at N1.35tn.
Two other banks that have surpassed the current capital base requirement of the CBN are FCMB and Fidelity Bank with N494bn and N479bn respectively.
Meanwhile, 22 other banks plying their trade in the country, according to sources, are to begin seeking new investors which will help them remain in business after the CBN had disclosed the fresh capital base.
Reacting to the development, a former president of the Chartered Institute of Bankers of Nigeria, Professor Segun Ajibola, revealed that it would be difficult to predict what the new minimum capital base would be.
He said, “It is a difficult figure for anybody to come up with. Even the central bank cannot come up with any figure as of today. All they have thrown into the open is a need. And that need for recapitalisation cannot be faulted for many reasons. When the recapitalisation was introduced in 2005, the exchange rate was a little over N100 to one dollar and the reason why the policy was introduced then was to give the banks, the opportunity to handle transactions in reasonable size on behalf of their customers. The same problem is with us today now with the value of the Naira viz-a-viz other foreign currency. So, their paid-up capital needs to be increased too.”
He added that the recapitalisation drive should be different from the 2005 episode, saying, “To come up with a figure, you have to do a lot of work. It should be more engaging now than before when the N25bn was announced. I will expect that the Bankers Committee, the central bank and even other agencies will sit down to determine what is the desirable figure that will be able to help banks themselves, their shareholders, customers and the economy. So it is not just a figure that anybody can drop anyhow. Otherwise, the problem of 2005 where banks of different backgrounds, cultures, and orientations, forced themselves together and the industry was in chaos.”
A Chief Financial officer of a Deposit Money Bank in a chat with The PUNCH, speaking under the condition of anonymity, stated that the bigger banks in Nigeria would not need to raise capital as they were already highly capitalised.
He said, “It will be smaller banks looking to raise capital, I don’t think the bigger banks will have that kind of problem. So, it won’t be like the 2004/2005 consolidation. I think this one will just be the smaller ones, the bigger boys are well-capitalised. The international banks can easily bring in dollars but largely, all the international banks have capital above N200bn, so I don’t think we have any issues.”
He added that the new capital threshold would automatically reduce the number of banking licences issued, “because it will be difficult to start new banks.”
Already, Wema Bank, First Bank of Nigeria Holding and Fidelity Bank are some of the banks that have proposed to raise funds from the capital market.
“The banks will have options, public offer where they will tell people to come and buy their shares or they do a special placement where tell a few persons with money to come and invest in their banks but the popular approach is a public offer,” the bank CFO revealed as some of the instruments by which banks will raise funds.
Findings showed that Wema Bank is planning an N40 billion Right Issue scheduled to begin in December.
Also commenting, an industry analyst and Senior Relationship Manager, Corporate Banking, FSDH Merchant Bank, Ayodele Akinwnmii, said, “This will allow the banks to be well capitalised to continue to support the economy given the recent changes in the economy. It will also position the industry well to take advantage of the expected growth in the economy. In addition, the recapitalisation process will attract foreign investors into the banking industry through Foreign Direct Investments, therefore helping the country to drive part of the much-needed long-term foreign currency investment into this important and attractive sector to stabilise the value of the naira. The banking industry will also use the opportunity to pitch to select foreign investors to drive the investments.”
Financial expert and the Group Managing Director/ Chief Executive Officer of Cowry Asset Management Limited, Johnson Chukwu, stated that the capital market was buoyant enough to meet the recapitalisation needs of the banks.
He, however, stated that some of the banks may not need to come to the bank to raise additional capital as they were already buoyant.
“Many of the banks may have more than the capital required. For those who will come to the market, a lot will depend on what is the capital requirement. And how many banks will require a fresh capital injection and what is the overall industry capital need? Those are critical questions to ask but when all’s said and done, I think at least the top five banks have enough capital to meet the recapitalisation,” Chukwu said. – Punch.
