The new minimum capital base for commercial banks with national authorisation is now ₦200 billion, while that of banks with regional authorisation is ₦50 billion.
Also, the CBN pegged the new minimum capital for merchant banks at ₦50 billion, while the new requirements for non-interest banks with national and regional authorisations are ₦20 billion and ₦10 billion, respectively.
These developments were contained in a circular on Thursday to all commercial, merchant, and non-interest banks and promoters of proposed banks, signed by the Director, Financial Policy and Regulation Department, Haruna Mustafa.
The apex bank stated that all banks are required to meet the minimum capital requirements within 24 months commencing from April 1, 2024, and terminating on March 31, 2026.
Meanwhile, financial sector analysts have expressed doubt about the ability of some banks- particularly some of the tier-2 banks to meet the new capital requirement, noting that the only likely alternative would be Mergers and Acquisitions.
The tier-2 lenders include Stanbic IBTC, Ecobank, Union, FCMB, Wema, Sterling, and Unity Bank.
A recent report by Ernst and Young indicated that about 17 out of the existing 24 commercial banks in Nigeria might not be able to meet capital requirement above N25illion.
According to the report, titled; “Navigating the Horizon: Charting the Course for Banks amid Plans for Recapitalisation”, the rating agency noted that if the CBN raised the capital base of commercial banks in the country by 15-fold from N25billion, only seven banks may survive.
According to the Thursday circular, the new minimum capital requirement, initially hinted by the CBN Governor, Olayemi Cardoso, in his address to the Annual Bankers’ Dinner in November 2023, was to enhance banks’ resilience, solvency, and capacity to continue supporting the growth of the Nigerian economy.
The apex bank urged banks to consider injecting fresh equity capital through private placements, rights issues and/or offers for subscription; Mergers and Acquisitions (M&As); and/or upgrade or downgrade of license authorisation.
According to the circular, the minimum capital shall comprise paid-up capital and share premium only.
Furthermore, it stated that the new capital requirement shall not be based on the Shareholders’ Fund. “Additional Tier 1 (AT1) Capital shall not be eligible for meeting the new requirement. It noted that notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio (CAR) requirement applicable to their license authorisation.
It added: “In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularise their position.”
The CBN circular said the minimum capital requirement for proposed banks shall be paid-up capital, adding that the new minimum capital requirement shall apply to all new applications for banking licenses submitted after April 1, 2024.
It also noted that the CBN would continue to process all pending applications for banking licenses for which a capital deposit had been made and/or an Approval-in-Principle (AIP) had been granted.
However, it said that the promoters of such proposed banks would make up the difference between the capital deposited with the CBN and the new capital requirement no later than March 31, 2026.
Meanwhile, the CBN said all banks are required to submit an implementation plan (clearly indicating the chosen option(s) for meeting the new capital requirement and various activities involved with their timelines) no later than April 30, 2024.
The apex bank also said that it would monitor and ensure compliance with the new requirements within the specified timeline.
“The MPC reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines”, Cardoso said.
He added: “The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”
Cardoso had in November last year, shortly after he assumed office, hinted that the apex bank would consider an increase in the minimum capital base of banks in the country, as part of its efforts to strengthen their capacity to support Nigeria’s drive to become a $1trillion economy by 2026.
The CBN, last increased capital base for banks in 2005, from N2billion to N25 billion during the tenure of Charles Soludo as Governor. This resulted in Mergers and Acquisitions as most banks could not meet the then minimum capital requirement.