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Why CBN might increase banks’ capital base from N25 billion to N900 billion
A report suggests that the Central Bank of Nigeria (CBN) is considering urging banks with international banking licenses to increase their capital base to over N900 billion.
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.
This proposal aligns with the CBN’s broader objective of supporting the Federal Government’s vision to grow the economy to $1 trillion.
The Banking Sector FY 2024 Outlook, produced by CardinalStone Securities, a non-bank securities trading firm, outlines projections for Nigerian banks to enhance their capital, with estimates ranging from N181.85 billion for regional banking licenses to N909.27 billion for international banking licenses.
The report draws attention to the possibility of the CBN returning to the dollar ratios of capital bases to GDP set in 2005, ranging from 0.04 per cent for regional banks to 0.22 per cent for commercial banks.
However, achieving the goal of a $1 trillion economy in seven years may prompt even higher capital base requirements.
The report highlights a significant decline from the 2005 recapitalisation exercise, with requirements dropping from 0.04 per cent to 0.22 per cent of GDP in dollar terms in 2005 to a range of 0.00 per cent to 0.01 per cent of GDP in dollar terms in 2024.
According to the report, “Banks may be expected to boost capital base to between N181.85 billion (for regional banks) and N909.27 billion (for international banks), given the 2024 real GDP of $472.6 billion and an exchange rate of N841.61/$ as of December 20, 2023.”
While several banks are likely to meet these proposed requirements, the report acknowledges that the ambitious target of reaching a $1 trillion economic size in seven years may necessitate an even higher range for capital base requirements.
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Tier-1 international banks like Zenith Bank and UBA are anticipated to surpass the implied thresholds, but the report indicates a need to monitor developments to ascertain the CBN’s final decision and the structure of the directives and timelines.
In 2023, some Nigerian banks have been raising funds to increase their capital base and also requesting approval from shareholders for fundraising.
Access Bank secured $300 million from its parent company, Access Holdings, in April.
In March, Wema Bank informed its shareholders of its plan to issue bonds worth N25 billion.
Also, FCMB announced plans to borrow N20.68 billion and Fidelity Bank sought shareholders’ approval to trade 13.2 billion shares for capital through a public offer and rights issue.
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