Addressing bankers and other stakeholders in the Nigerian banking industry at the annual Bankers Dinner in November last year, Governor of the Central Bank of Nigeria (CBN), Dr. Olayemi Cardoso hinted that the apex bank would require banks in the country to increase their share capital. He said the administration of President Bola Tinubu is shooting for a $1 trillion economy and this would require banks to increase their capital base to be able to support an economy of that size.
In March this year, the CBN formally issued a policy on the new minimum capital base for banks. As specified in the policy, money deposit banks with international authorisation will have to beef up their capital to a minimum of N500 billion while those with national and regional authorisation are required to raise their capital base to a minimum of N200 billion and N50 billion, respectively.Non-interest banks with national and regional authorization are to increase their capital base to a minimum of N20 billion and N10 billion, respectively. The banks have up to March 31, 2026 to meet the new capital base.
To comply with the new policy, CBN recommended that banks could consider the following options: private placement, rights issue, offer for subscription, mergers and acquisitions, or changing their licences.
The road to the new capital base is made very hard for the banks with the apex bank’s insistence that all that will count for the new capital base are share capital and share premium. That means that retained earnings will not count as part of the new capital base.
With the exclusion of retained earnings as a component of the new capital base, meeting the new capital base of N500 billion for international authorization and N200 billion for national authorization will be a tough call for some banks, while for others it will be a walk in the park. For the banks that currently have international authorisation, the FUGAZ (First Bank of Nigeria, United Bank for Africa, Guaranty Trust Bank, Access Bank and Zenith Bank) will certainly retain their international licence. As a matter of fact, not doing so will hurt their finances and reputation. This is because they all have their tentacle spread to all parts of Africa, Europe, Asia and the United States of America, and they are earning huge income and profits from their subsidiaries abroad. Therefore, if they lose their international licence, they will also lose the income and profits that accrue to them from their foreign subsidiaries. In fact, for some of them, nearly 50 per cent of their earnings come from their overseas subsidiaries. Again, losing their international licence will do serious damage to their reputation, because it would amount to becoming local champion after playing in the global arena for years.
For the non-FUGAZ – Fidelity Bank, Union Bank of Nigeria and First City Monument Bank – that currently have international authorisation, meeting the new capital base of N500 billion will be a very difficult task. Going by their 2023 audited financial statements, the capital base of these three banks is below the N200 billion required for national licence by the new CBN capital requirement.
In a special report, NextMoney analysts will look at how the banks are pushing towards the new capital base, and the possibility of meeting the new base capital by each bank.