Mega Banks Lead with N10tn Capital Base Amid Industry Consolidation

As InfoStride News reports, the Central Bank of Nigeria’s proposal for a new banking sector consolidation has raised concerns among industry operators. Currently, major banks with foreign subsidiaries control a capital base of N9.6 trillion, with five key banks having capital above N1 trillion each.

An analysis of the capital base data of leading commercial banks in Nigeria indicates that the proposed consolidation could impact national, regional, and merchant banks. Some of these banks have not seen significant growth in their capital base compared to counterparts with foreign subsidiaries.

CBN Governor Olayemi Cardoso emphasized the need to increase the bank’s capital base to accommodate the projected $1tn economy and address the impact of currency devaluation on bank operations. Seven tier-1 banks, including Zenith Bank, Access Bank, FBN Holdings, GTCO, UBA, FCMB, and Fidelity Bank, appear prepared for the upcoming recapitalization exercise, as they collectively hold N9.6 trillion in capital.

While the specific minimum capital requirement remains uncertain, former President of the Chartered Institute of Bankers of Nigeria, Professor Segun Ajibola, highlighted the challenges of determining a figure. He urged a more thorough and engaging approach than the 2005 consolidation, emphasizing the need for collaboration among banking institutions, the central bank, and other agencies.

A Chief Financial Officer of a Deposit Money Bank suggested that larger banks may not face significant challenges, while smaller banks could explore options like public offers or special placements to raise capital. Notably, Wema Bank, First Bank of Nigeria Holding, and Fidelity Bank have already proposed raising funds from the capital market.

Experts such as Ayodele Akinwunmi and Johnson Chukwu believe that the recapitalization process will position banks to support economic growth, attract foreign investors, and drive long-term foreign currency investment. They also anticipate a reduction in the number of banking licenses issued due to the higher capital threshold.

Rasheed Yusuf, the doyen of the Nigerian Exchange Limited, expressed confidence in the local bourse’s ability to support the capital raise, emphasizing the resilience of Nigerian investors. He acknowledged the $1tn economy goal as a wake-up call for all sectors, not just banks.

While some analysts, including Ayodeji Ebo, express doubts about the Nigerian capital market’s ability to fully support the recapitalization, others like Rotimi Fakayejo suggest a stretched timeline for implementation. However, a former bank managing director voiced concerns about the central bank’s focus on political issues, such as the $1tn economy projection.

In summary, the banking sector in Nigeria is poised for a significant transformation as the central bank pushes for a higher capital base to meet the challenges and opportunities posed by a growing economy. The outcomes of this recapitalization exercise are likely to shape the future landscape of the Nigerian banking industry.