Lenders in Nigeria are working to raise additional capital to meet new requirements set by the Central Bank of Nigeria (CBN). These targets, announced last month, must be met within two years, with some banks needing to increase their capital by up to tenfold compared to current minimums.
The CBN’s new requirements aim to ensure banks have a strong capital base to absorb unexpected losses and support Nigeria’s economic growth. The government has set a goal for the country to reach a $1 trillion economy by 2030, and the central bank believes that larger, better-capitalized banks will be crucial in providing the necessary credit to stimulate economic activity.
The new capital requirements are:
- Commercial banks with international licenses: Increased from 50 billion naira ($36.5 million) to 500 billion naira.
- National banks: Raised from 25 billion naira to 200 billion naira.
- Regional banks: Increased from 10 billion naira to 50 billion naira.
- Non-interest banks: Raised from 5 billion naira to 20 billion naira.
- Regional non-interest banks: Increased to 10 billion naira.
To meet these requirements, banks can pursue options such as private placements, rights issues, or offers for subscription; mergers and acquisitions; or adjustments in their license status. However, additional Tier 1 capital will not be accepted.
Damilare Asimiyu, macroeconomic strategist at Afrinvest Consulting, describes the recapitalization as a necessary measure given Nigeria’s exchange-rate volatility and high inflation. The naira has depreciated significantly from 129 to the US dollar in 2005 to over 1,100 to the dollar now, impacting the value of banks’ assets. Asimiyu expects the Tier 1 banks, known collectively as FUGAZ (First Bank, United Bank for Africa (UBA), Guaranty Trust, Access, and Zenith), to successfully meet the new capital requirements. Some of these banks have already begun actions towards raising capital: UBA plans a rights issue and private placements, Zenith intends to seek shareholder approval for capital raising in both domestic and international markets, and Guaranty Trust aims to raise $750 million through various means.
