As the Central Bank of Nigeria’s proposal to initiate a new banking sector consolidation raises concerns among some industry operators, findings indicate that major banks with foreign subsidiaries currently control N9.6 trillion capital base.
This is just data compiled by the papers showing that five key banks currently have capital above N1 trillion each.
An analysis of the current capital base data of leading commercial banks in Nigeria revealed that the proposed consolidation, which is yet to be fully conceptualized by the apex bank, will most likely affect national, regional and merchant banks.
A number of the national, regional and merchant banks have not grown their capital base over the years in the manner their counterparts with foreign subsidiaries have grown theirs.
The CBN Governor, Olayemi Cardoso, had on Friday in his keynote address at the Bankers’ Dinner said the apex bank would be asking banks to raise their capital base.
He premised the need to increase the bank’s capital base on servicing the $1tn economy projected by President Bola Tinubu as well as the effect of currency devaluation on bank operations.
He said, “In my recent speech at the 370th Bankers’ Committee meeting, I highlighted the economic agenda of President Bola Ahmed Tinubu’s administration. The administration, as outlined in the widely circulated Policy Advisory Council report on the national economy earlier this year, has set an ambitious goal of achieving a Gross Domestic Product (GDP) of $1tn over the next seven years, with clearly defined priority areas and strategies. Attaining this substantial target necessitates sustainable and inclusive economic growth at a significantly higher pace than current levels. The administration has already commenced this journey through fiscal reforms, including the removal of petrol subsidies and the unification of the foreign exchange market rate.
“Considering the policy imperatives and the projected economic growth, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy. It is crucial to evaluate the adequacy of our banking industry to serve the envisioned larger economy. It is not just about its current stability. We need to ask ourselves, can Nigerian banks have sufficient capital relative to the finance system needs in servicing a $1tn economy shortly, in my opinion, the answer is no, unless we take action. As a first test, the central bank will be directing banks to increase their capital.”
However, findings indicate that seven tier-1 banks seem ready for the imminent recapitalization exercise.
Findings showed that the seven leading banks in the Nigerian banking sector pooled N9.6 trillion as the capital base as of the end of the 2022 financial year.
Zenith Bank, according to information obtained from Statista, emerged as the most capitalized bank in Africa’s largest economy with N2.07tn while Access Bank came next with N1.92tn.
FBN Holdings stands strong with N1.78tn with GTCO on the fourth position with N1.37tn, followed closely by United Bank for Africa Plc at N1.35tn.
Two other banks that have surpassed the current capital base requirement of the CBN are FCMB and Fidelity Bank with N494bn and N479bn respectively.
Meanwhile, 22 other banks plying their trade in the country, according to sources who spoke with The PUNCH, are to begin seeking new investors which will help them remain in business after the CBN had disclosed the fresh capital base.
Reacting to the development, a former president of the Chartered Institute of Bankers of Nigeria, Professor Segun Ajibola, revealed that it would be difficult to predict what the new minimum capital base would be.
He said, “It is a difficult figure for anybody to come up with. Even the central bank cannot come up with any figure as of today. All they have thrown into the open is a need. And that need for recapitalization cannot be faulted for many reasons. When the recapitalization was introduced in 2005, the exchange rate was a little over N100 to one dollar and the reason why the policy was introduced then was to give the banks, the opportunity to handle transactions in reasonable size on behalf of their customers. The same problem is with us today now with the value of the Naira viz-a-viz other foreign currency. So, their paid-up capital needs to be increased too.”
He added that the recapitalization drive should be different from the 2005 episode, saying, “To come up with a figure, you have to do a lot of work. It should be more engaging now than before when the N25bn was announced. I will expect that the Bankers Committee, the central bank and even other agencies will sit down to determine what is the desirable figure that will be able to help banks themselves, their shareholders, customers and the economy. So it is not just a figure that anybody can drop anyhow. Otherwise, the problem of 2005 where banks of different backgrounds, cultures, and orientations, forced themselves together and the industry was in chaos.”
A Chief Financial officer of a Deposit Money Bank in a chat, speaking under the condition of anonymity, stated that the bigger banks in Nigeria would not need to raise capital as they were already highly capitalized.
He said, “It will be smaller banks looking to raise capital, I don’t think the bigger banks will have that kind of problem. So, it won’t be like the 2004/2005 consolidation. I think this one will just be the smaller ones, the bigger boys are well-capitalized. The international banks can easily bring in dollars but largely, all the international banks have capital above N200bn, so I don’t think we have any issues.”
He added that the new capital threshold would automatically reduce the number of banking licenses issued, “because it will be difficult to start new banks.”
Already, Wema Bank, First Bank of Nigeria Holding and Fidelity Bank are some of the banks that have proposed to raise funds from the capital market.
“The banks will have options, public offer where they will tell people to come and buy their shares or they do a special placement where tell a few persons with money to come and invest in their banks but the popular approach is a public offer,” the bank CFO revealed as some of the instruments by which banks will raise funds.
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Also commenting, an industry analyst and Senior Relationship Manager, Corporate Banking, FSDH Merchant Bank, Ayodele AKINWUNMI, said, “This will allow the banks to be well capitalized to continue to support the economy given the recent changes in the economy. It will also position the industry well to take advantage of the expected growth in the economy. In addition, the recapitalization process will attract foreign investors into the banking industry through Foreign Direct Investments, therefore helping the country to drive part of the much-needed long-term foreign currency investment into this important and attractive sector to stabilize the value of the naira. The banking industry will also use the opportunity to pitch to select foreign investors to drive the investments.”
The financial expert and the Group Managing Director/ Chief Executive Officer of Cowry Asset Management Limited, Johnson Chukwu, stated that the capital market was buoyant enough to meet the recapitalization needs of the banks.
He, however, stated that some of the banks may not need to come to the bank to raise additional capital as they were already buoyant.
“Many of the banks may have more than the capital required. For those who will come to the market, a lot will depend on what is the capital requirement. And how many banks will require a fresh capital injection and what is the overall industry capital need? Those are critical questions to ask but when all’s said and done, I think at least the top five banks have enough capital to meet the recapitalization,” Chukwu said.
On the NGX, domestic portfolio investors have maintained their dominance as foreign investors remain on the sidelines mostly over foreign exchange challenges still persisting in the economy.
Yusuf said that the $1tn economy proposition of the Tinubu administration was a wake-up call for every player in the economy, saying, “I don’t think it is just about the banks, everyone will have to do a recheck if we are going to manage a $1tn economy. It is a wake-up call for all of us. The foreign investors left the economy but the Nigerian investors have sustained the market and the Nigerian capital market has been one of the most performing in the whole world. You must give credit to Nigerian investors, they stepped in and took the position that the foreign investors left. Yes, the foreign investors will be welcomed but we have gone past the stage where the destiny of Nigeria is totally dependent on foreign investors. It will be an embellishment but it will not be a matter of life and death.
“On the $1tn economy drive in seven years time, if the economy responds as they think, even if he doesn’t say it, everyone will have to respond to that kind of expansion. It is a big if. However, I’m sure, the financial institutions are ready and will be able to respond accordingly. There is no fear about the ability of Nigerian institutions to do that. The danger before was over capitalization, if you cannot use that capital to generate enough business. It’s just a wake-up call to everyone. It is right and logical and I’m sure the market will respond accordingly. But there is no fear. The market can do it. Also, if the economy expands as envisaged, it creates an opportunity for more foreign banks to come in and local banks will expand.”
The MD, Marble Capital Limited, Akeem Oyewale, said that the market had proven its capability with the 2005 capital raise.
“It was proven that when the banks were raising their capital to N25bn, the capital market was able to provide a lot of support. So, I think the capital market can and will be able to see how it supported the likes of MTN Nigeria, Dangote and the like. For well-run banks with proper structures, proper ratios and all those things that the capital market will need to see in a company, it will be able to provide support.
Regardless of the poor economy and low participation of foreign investors, Oyewale said that the market could provide support. He said, “We know the economy has been struggling at the moment but at the same time, we know that the capital market still has potential. The pension funds are there, they are looking for huge and reasonable investments. We have more than N17tn available for investment that has just been plowed into Treasury Bills and over sovereign instruments largely. Yes, there is still room and with what the CBN is saying that it will be focused on its primary responsibilities, if they do so and don’t get distracted, then the foreign exchange challenges might be resolved in the medium term and this will make things better for the capital market and even foreign investors will be part of this recapitalization drive through the Nigerian capital market.”
However, the MD of Afrinvest Securities Limited, Ayodeji Ebo, expressed doubts that the capital market will be able to fully support the recapitalization.
He said, “The Nigerian capital market may not be able to fully support the recapitalisation of the banks given the market is currently been driven by domestic investors. To also achieve this, the banks must adopt technology to drive the capital raise process as we saw during the MTN public offer.
Ebo added, “We believe if the foreign exchange policy is clear and consistent in the medium term, we expect to begin to attract FPIs to the capital market.”
An economy and capital market analyst, Rotimi Fakayejo, in his comments, said “The market will support it but the timeline has to be stretched and not implemented immediately. If the deadline can be 2 years from January 2024 and the end of December 2026. At such a time, Foreign Portfolio Investors would have started returning to the market gradually.”
A former bank managing director of an international bank operating in Nigeria worried that the new CBN governor was toeing the path of his predecessor for political gains.
He said, “I don’t like it when policymakers become obsessed with political issues like a $1tn economy. Do your work which is to control inflation, ensure price stability and manage the exchange rate in a sensible way. Face your work and let others do theirs.
“When you talk about a $1tn, this are some of the issues that affected Goddy (Emefiele, former CBN governor), he was getting involved in something that shouldn’t be his focus. The size of the economy is a by product of the Central Bank’s activities. Yes, the Central Bank’s activities can influence economic growth for sure but the central bank should not be talking about the projected size of the economy if not for politics. It is not their job. There is no formula for the bank capitalization that will generate a $1tn economy. We can only guess.”
Cardoso’s announcement has elicited varied reactions from the banking industry since Friday. It was revealed that some bank CEOs are already involved in merger and acquisition talks to meet the new capital base.
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