Banks eye Eurobonds, foreign investors for N4tn fresh capital
Twelve banks will be unable to utilise about N4.8tn in retained earnings in their coffers to strengthen their capital base in line with the new Central Bank of Nigeria directive to raise capital.
This came as officials of commercial and merchant banks are eyeing Eurobonds and private placements from foreign investors as race for the bank sector recapitalisation race fathers momentum.
The CBN had in a new circular to commercial, merchant and non-interest banks and promoters of new banks on Thursday announced the review of the capital requirements for the operations of the affected categories of banks in the country.
Citing both domestic and global shocks, the apex bank in a statement signed by its Acting Director, Corporate Communications, Sidi Ali, said it had become necessary to raise the capital base of the banks.
Twelve banks will be unable to utilise about N4.8tn in retained earnings in their coffers to strengthen their capital base in line with the new Central Bank of Nigeria directive to raise capital.
This came as officials of commercial and merchant banks are eyeing Eurobonds and private placements from foreign investors as race for the bank sector recapitalisation race fathers momentum.
The CBN had in a new circular to commercial, merchant and non-interest banks and promoters of new banks on Thursday announced the review of the capital requirements for the operations of the affected categories of banks in the country.
Citing both domestic and global shocks, the apex bank in a statement signed by its Acting Director, Corporate Communications, Sidi Ali, said it had become necessary to raise the capital base of the banks.
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Thus, the CBN directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn while those with regional authorisation are expected to achieve a N50bn capital floor. Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20bn and N10bn, respectively.
The CBN’s move came two days after the Monetary Policy Committee hinted that it would change the capital base of the banks.
According to the CBN circular, only the share capital and share premium items on the Shareholder Fund portion of the balance sheet will be recognised in this particular round of recapitalisation.
The apex bank circular said, “For Existing Banks a. The minimum capital specified above shall comprise paid-up capital and share premium only. For the avoidance of doubt, the new capital requirement shall NOT be based on Shareholders’ Fund. b. Additional Tier 1 Capital shall not be eligible for the purpose of meeting the new requirement. c. All banks are required to meet the minimum capital requirement within a period of 24 months commencing from April 1, 2024 and terminating on March 31, 2026. d. Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio requirement applicable to their license authorization. e. In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularize their position.”
For proposed banks, the CBN said that their minimum capital requirement shall be paid-up capital and applicable to all new applications for banking licences submitted after April 1. 2024.
It added that for proposed banks whose applications it is processing, CBN, said “It shall continue to process all pending applications for banking licence for which capital deposit had been made and/or Approval-in-Principle had been granted. However, the promoters of such proposed banks shall make up the difference between the capital deposited with the CBN and the new capital requirement not later than March 31, 2026.”
Usually, the shareholders’ fund segment of the balance sheet consists of share capital, share premium, Additional Tier 1 capital, retained earnings, other components of equity.
The PUNCH had earlier reported that about 26 banks including commercial banks, merchant banks and non-interest banks would need to raise about N4tn in the next 24 months to meet the new capital base required by the CBN.
Findings by The PUNCH have shown that 12 financial institutions, including Access Holdings, FBN Holdings, FCMB Group, Fidelity Bank Plc, Stanbic IBTC, Zenith Bank Plc, United Bank for Africa, Sterling Financial Holdings, Guaranty Trust Holding Company Plc, Wema Bank, Polaris Bank and non-interest bank, Jaiz Bank have N4.8tn in retained earnings, which they will be unable to touch due to the CBN directive.
According to Investopedia, retained earnings are the cumulative net profits of a company after accounting for dividend payments. It captures the fact that because those earnings were not paid out to shareholders as dividends, they were instead retained by the company.
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