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As CBN Increases Capitalization To N500bn, Zenith, UBA, and Four More Beat the Benchmark

Apr 16, 2024 | International | 0 comments

The Central Bank of Nigeria (CBN) has announced new minimum capital requirements for banks aimed at bolstering the financial system’s resilience. This move follows the recent call for Nigerian banks to enhance their capital base to strengthen the economy.

Under the new guidelines, the minimum capital base for commercial banks with international authorization has been set at N500 billion, a significant increase from the previous N50 billion requirement for a global banking license. Similarly, the minimum capital requirement for national banks is now N200 billion, while regional banks must maintain a capital base of N50 billion.

Merchant banks are required to have a minimum capital of N50 billion, and non-interest banks with national and regional authorizations must maintain minimum capital bases of N20 billion and N10 billion, respectively.

The CBN directive emphasizes that all banks must meet these new minimum capital requirements within 24 months, starting from April 1, 2024, and ending on March 31, 2026. The announcement underscores the importance of enhancing banks’ resilience, solvency, and capacity to support Nigeria’s economic growth.

To facilitate compliance with the new requirements, banks are encouraged to consider various options, such as injecting fresh equity capital through private placements, rights issues, mergers and acquisitions, or license authorization upgrades or downgrades. The CBN also clarified that the new capital requirement would comprise paid-up capital and share premium only, excluding Additional Tier 1 (AT1) Capital.

Additionally, banks are required to submit an implementation plan by April 30, 2024, outlining their strategies for meeting the new capital requirements.

Several tier-1 banks, including Zenith Bank, UBA, Access Bank, and others, have already exceeded the new minimum capital threshold, demonstrating their robust financial positions. However, for banks that need to raise additional capital, options such as public offers or incorporation of foreign debt into their portfolios are available.

While the recapitalization process may lead to short-term earnings dilution, it is expected to strengthen banks’ capacity to withstand economic shocks, support larger enterprises, and improve access to credit. However, smaller banks that fail to meet the new requirements may face consolidation, resulting in a reduction in the overall number of banks in the market.

Overall, the recapitalization initiative is poised to enhance the stability and resilience of Nigeria’s banking sector, ultimately contributing to the nation’s economic development.

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