Top 8 banks need to raise N1.57 trln to meet regulatory stipulation


…as CBN warns against warehousing illicit funds

By Kehinde Ibrahim, Lagos

NIGERIA ’s top eight commercial lenders would be required to raise a combined total of N1.575 trillion to enable them to meet the new minimum capital requirement as stipulated by the Central Bank of Nigeria (CBN).

The CBN released a new minimum capital requirement for banks on Thursday, among which the regulator stipulates N500 billion for banks with international authorisation.

Fidelity Bank, Access Bank, GTBank, First Bank, United Bank for Africa, Union Bank, Zenith Bank, and FCMB all fall into the category of banks expected to jerk up their minimum capital to N500 billion.

As of the date of the issuance of the regulatory circular on minimum capital requirements, the eight banks came short of the new stipulation.

For instance, Zenith Bank currently has N270.75 billion in share capital and would need to inject an additional N229.25 billion to meet the new CBN requirement.

Access Bank currently has N251.81 billion and would need N248.19 billion to meet the new regulatory requirements. First Bank currently has N251.34 billion in share capital and needs to plug the N248.66 billion gap.

Others are Union Bank, which currently has N148.09 billion and needs N351.91 billion in new capital; GTBank, which has N138.19 billion and would need N361.81 billion; and Fidelity Bank, which has N29.71 billion and would have to inject fresh N370.30 billion in new capital.

FCMB has N125.29 billion currently and would need to raise an additional N374.71 billion in fresh capital, while the United Bank of Africa (UBA) has N115.82 billion currently and would need a new injection of N384.19 billion in new capital.

Prior to the announcement by the CBN, Access Holding Plc notified Nigerian Exchange Limited of its plans to seek a shareholders’ vote next month for approval to launch a capital raising program of $1.5 billion via a share sale or bond offering, it said in a notice ahead of the vote.

However, from the look of things, it appears many banks would have to seek business combinations through merger and acquisition to enable the scale the hurdle of the new capital requirement by the regulatory bank.

Many banks at their current capital base would require huge funds to plug the huge gap between their present share capital and the regulatory requirement and the possibility of their shareholders being able to muster the resources is suspect.

A recent report from Ernst and Young estimated that 17 out of 24 banks might not meet the capital requirement of the CBN if it is increased 15-fold from its current N25 billion.

While the 17 banks remain eclipsed, it was gathered that 11 of them are ripe for total acquisition by the stronger banks.

Top five banks that are likely to acquire additional banks are; First Bank, Access Bank, UBA, Guaranty Trust Bank and Zenith Bank. They achieved a market capitalisation of at least N1 trillion each on NGX in January.

Ernst and Young’s report predicted a repeat of the mass mergers and acquisitions witnessed in 2004.

An analysis further revealed that 11 banks may need to raise N2.61 trillion to meet up with the CBN’s target by March 31, 2026, though some bankers have criticised the CBN’s decision to omit retained earnings from the share capital calculation in its recent recapitalization guidelines.

However , the CBN, the Economic and Financial Crimes Commission (EFCC) and other law enforcement agencies are set to closely supervise the process to prevent the injection of illicit funds into the banking system.

This was disclosed by the apex bank in a circular signed by Mr Haruna Mustafa, the director of the Financial Policy and Regulation Department.

The circular was specifically addressed to commercial, merchant, and non-interest banks, including promoters of proposed banks, on the new minimum capital requirements for banks.

The circular mirrors the apex bank’s strong resolve to block any attempt by bank owners and their promoters from warehousing proceeds of criminality in the banking system or using such ‘dirty funds’ to fortify their capital base.

Arising from that, banks are required to conduct comprehensive anti-money laundering screening checks. This includes Know Your Customer (KYC), Customer Due Diligence, and monitoring suspicious transactions to prevent the use of illicit funds in the recapitalisation exercise.

In his assessment of the new rules of engagement designed by the CBN for the banks, Prof Uche Uwaleke, Nigeria’s first professor of the capital markets, said that the apex bank’s move was a welcome development that would help strengthen the country’s financial system and a potential boost to the stock market.

“In view of naira devaluation following unification of exchange rates, the new calibrated minimum capital requirements seem okay unlike the uniform capital base of N25 billion stipulated in 2005.

“Shareholders’ funds comprise paid-up share capital plus reserves.

“If my memory serves me right, this was permitted in 2005, but now disallowed possibly from the experience of the last exercise.

“I believe the FUGAZ (FBN, UBA, GTB, Access and Zenith) banks with international authorization will have no difficulty meeting this requirement.

“The stock market (option 1) presents the most feasible option as few will likely go the M&A route. Access Bank has already announced it is raising N365 billion via Rights issue.

“I also think the two years period allowed is sufficient to implement recapitalisation.