- Access, Fidelity, First Bank, FCMB, GTCO, UBA, Union, Zenith, need N1.57trn to cross hurdle
- Meet the trail blazers, upwardly mobile, laggards
- Programme must be professionally managed – Stakeholders warn
- Experts foresee job cuts
Nigerian banks have begun a keen struggle for the survival of the fittest in their different categories, as they strive to raise their respective capital base in line with the new requirements of the Central Bank of Nigeria, investigations by The Point have revealed.
While it has been established that no bank currently has the new capital base requirements, findings by our correspondents have shown that some frontline banks are better positioned to raise the funds without much trouble than others.
The possibility of one or two mergers cannot also be ruled out, according to experts.
The banks have a period of 24 months, between April 1, 2024 and March 31, 2026, to meet the capital base requirements, the highest being N500 billion.
The move, according to the Central Bank of Nigeria is to reposition the lenders and increase their ability to finance a $1.0 trillion economy proposed by President Bola Tinubu.
THE TRAIL BLAZERS
Access Bank’s Paid-up capital added to its share premium is about half of what the CBN is asking for, it was learnt. While its shareholder’s fund is N2 trillion according to the guidelines, it cannot be used for recapitalisation.
According to findings by The Point, Access Bank Plc, about the country’s biggest bank, which also has vast international operations, needs to raise N500 billion within the next two years. Currently, it has N251.81 billion in share capital premium, leaving N248.19 billion to be raised to meet CBN regulations.
Among the tier-one banks listed, the United Bank for Africa is set to raise the largest sum, amounting to N384.19 billion, to fulfill the new CBN recapitalisation requirement. Currently, it possesses N115.82 billion in share capital plus premium.
Ecobank Transnational Inc., a tier-two bank with international authorisation, requires the smallest amount to be raised. It currently holds N353.51 billion in share capital plus premium, with N146.48 billion left to meet CBN regulations.
Further checks by The Point revealed that Zenith Bank Plc, UBA, FBN Holdings Plc, Ecobank Transnational Incorporated (ETI), Guaranty Trust Holding Company Plc (GTCO), and Access Holdings Plc have over N1 trillion in total equity as of September 30, 2023.
Zenith Bank closed September 30, 2023, with N1.9 trillion total equity, from N1.31 trillion reported in 2022, while UBA declared N1.78 trillion total equity as of September 30, 2023, from N922.1 billion reported in the 2022 full financial year.
As Access Holdings announced N1.64 trillion total equity as of September 30, 2023, from N1.23 trillion reported in 2022, FBN Holdings Plc declared N1.37 trillion total equity as of the nine months ended September 30, 2023, from N995.74 billion in 2022.
“Analysts opine that GTCO finds itself in a position where it may have to undertake a subordinate status in transactions it could have led”
In a desperate move to meet the capital base requirement of the apex bank, Access Holdings on Friday announced a plan to further shore up its capital base by raising a fresh $1.5 billion capital (about N2.13 trillion).
“Access Holdings Plc, one of Africa’s leading financial groups, has unveiled plans to establish a Capital Raising Programme of up to US$1,500,000,000.00 (One Billion, Five Hundred Million United States Dollars) or its equivalent (‘the Programme’). The Programme aims to enhance the Group’s financial strength through the issuance of various financial instruments such as ordinary shares, preference shares, Alternative Tier 1 capital, convertible and/or non-convertible debt, bonds, or other capital and/or funding instruments.
“The Programme may be executed through a variety of methods including public offerings, private placements, rights issues, book building processes, or a combination thereof. The specifics regarding the tranches, series, proportions, dates, pricing, tenor, and other terms and conditions that may be associated, will be determined by the Board of Directors, contingent upon securing the necessary regulatory approvals.
“Drawing from the Programme, the Group expects to raise up to N365, 000,000,000.00 (Three Hundred and Sixty-Five Billion Naira) specifically via a Rights Issue of ordinary shares. The proceeds of the proposed Rights Issue would be used to support ongoing working capital needs including organic growth funding for its banking and other non-banking subsidiaries,” Access Holding said in a statement.
In addition, Guaranty Trust Holding Company Plc reported N1.27 trillion total equity in the period under review from N931.15 billion in 2022, as Ecobank Transnational Incorporated posted N1.34 trillion total equity as of September 30, 2023, from N934.7billion in 2022.
For GTCO, reports had said that its management was exploring a capital raise of up to N525 billion. Sources at GTCO have, however, identified an urgent need to raise capital in line with an expected directive from the apex bank.
According to a source who is not authorised to speak to the public, the bank is considering raising between N450 billion and N525 billion through a public offer. The proceeds from the offer will be used to bolster its share capital and provide the bank with working capital.
However, an announcement is imminent, according to the source, who also revealed that the bank would be adopting a “non-dilutive” approach in the capital raise, suggesting that the public offer might take the form of a rights issue.
Some insiders at the bank suggest that the capital is required as it boosts the bank’s ability to “book large ticket transactions,” which would be difficult to finance with its current balance sheet.
GTCO also has the smallest number of deposits and Net Assets, with N6.3 trillion and N1.2 trillion, respectively, as of September 2023.
Reports also indicate that the single obligor limits of most banks have been affected by the devaluation of the Naira, meaning they will need to shore up capital to partake in big-ticket lending.
Analysts opine that GTCO finds itself in a position where it may have to undertake a subordinate status in transactions it could have led.
THE UPWARDLY MOBILE
As of September 30, 2023, Stanbic IBTC Holdings Plc, Fidelity Bank Plc, FCMB Group Plc, Sterling Financial Holdings Company Plc and Wema Bank Plc are listed below the N500 billion mark.
Only Fidelity Bank and Wema Bank have pursued new capital raising from their shareholders.
Fidelity Bank had concluded plans to raise about N32 billion from its existing shareholders in the first tranche of a recapitalisation that may see the bank raising more than N160 billion in new equity funds.
The Managing Director of Fidelity Bank, Nneka Onyeali-Ikpe, noted that the bank was growing in leaps and bounds and needed to expand its capital base to take advantage of emerging opportunities.
“We will also use the additional capital to enhance our technology infrastructure to enable us to serve more customers,” Onyeali-Ikpea added.
For Wema Bank, the management plans to execute a share placement to raise N40 billion in a move to scale total equity to N160 billion.
THE LAGGARDS
The only financial institution with a deficit in total equity is Unity Bank Plc. The retail bank reported N190.22 billion as of September 30, 2023, from N274.95 billion deficit in 2022.
Providus Bank Limited, a commercial bank founded in 2016, was reported to have taken bold steps to acquire a majority stake in Unity Bank, as part of the former’s business expansion plan.
Unity Bank has been struggling to beef up its minimum capital requirement since 2017.
PROGRAMME MUST BE PROFESSIONALLY MANAGED – STAKEHOLDERS WARN
The Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf, who expressed support for the CBN’s order to Nigerian Banks to increase their capital base warned that the programme must be managed professionally to avoid creating vulnerabilities in the banking system.
He noted that the announcement on Thursday might not have come as a surprise to the banks as they were already aware since last year that this was the direction of the CBN.
“The CBN governor already hinted about the bank’s recapitalisation at the CIBN dinner last year, so the announcement did not come as a surprise,” he stated while speaking with The Point.
“There are strong reasons to justify the recapitalisation proposition. The last major recapitalisation was done in 2004 when Prof Chukwuma Soludo was CBN governor. The minimum capitalisation was N25 billion, which was an equivalent of about 190 million dollars. At the current exchange rate, this is an equivalent of over N250 billion,” he noted.
He added that the recapitalisation proposition was essentially adjusting for inflation.
Speaking on the benefits of the exercise, he said, “An economy deserves a stable and virile banking system. Adequate capitalisation is one of the key attributes of banking system stability. It positions the banking system to manage its exposures and withstand shocks.”
On the time frame given to the banks to meet the new requirement, he stated, “It is laudable that the CBN gave a two-year notice to the banks. This would give the banks sufficient time to strategise for a new capitalisation regime.”
Assuring depositors of the safety of the banking system and why the new regulation would not affect their deposits, Yusuf said, “It is important to assure the banking public that all our banks are safe and sound. All financial soundness indicators are positive for all our banks.”
Chairman, Maxifund Limited, Okechukwu Unegbu, said the announcement came at the right time but encouraged the banks to come up with strategies to encourage politicians to participate in the recapitalisation programme as they were the ones with huge funds in society today.
“I think this is coming at the right time, I don’t see any big deal in it, only that the banks will have to up their antes, a lot of them are not strong they are just holding on without so much to show for it.
“Thank God the CBN Governor gave them two years. Within that period, they should be able to raise the money. The only problem is the economy, which is not very strong, that is the only problem they will face but I know that they will work it out. A lot of them will do private placement, they will do public offers and all sorts of things to up their share capital.”
As it concerns the categorisation and the Nigerian banks expected to meet the peak capitalisation to play in the international market, he said, “I expect the Tier 1 banks such as First Bank, Zenith Bank, Access Bank, GTB and UBA (all these are international banks), to meet the N500 billion new capitalisation requirement, and I am confident that they can do so.”
“A lot of them might do the loan option. They may offer to the public instruments that will be time-based, which will make them raise the amount they require.
“In other words, they would be looking closely at doing stuff like Bonds and so on. All they have to do is state exactly what they want to do with the funds. Don’t forget that there are so many ways of raising capital, not just by going to the market but by offering other instruments that are acceptable to the members of the public,” Unegbu added.
Speaking of how a successful recapitalization of the banks would impact the nation’s economy, he said, “The economy as I have earlier stated is infertile for now, I know that not everybody has the money but I know that this is the time for politicians who have stolen so much money to invest it in our system rather than sending it abroad. If they can invest it in our system, the economy will be better for it. So what they do will be for the benefit of the economy.”
Also speaking, the MD/CEO, GlobalView Capital Limited, Aruna Kebira, described the recapitalisation programme as a welcome development.
“Generally speaking, the last time Nigerian banks were recapitalized was in 2004 that is about 20 years ago.
“I believe that there is a need for them to be recapitalized,” he stated.
He noted that the announcement last week did not come as a surprise but something the market was waiting for.
“You know last November when the CBN governor gave a hint about the recapitalization plan; it threw a lot of frenzy into the market and believed that it might not be like what happened in 2004.
“But you know as life progresses people begin to do things in different ways. In 2004, the main focus of banks was to raise funds from the capital market. This time around there are options, you capitalize according to your market spread, international, national or regional, so you have the opportunity to participate in one space or the other,” he stated.
EXPERTS FORESEE JOB CUTS
Addressing the CBN-ordered recapitalization 2024 programme on his X handle (formerly known as Tweeter) Chairman, Tekedia Capital Limited, Ndubusi Ekekwe, warned that the CBN should be strategic as it could lead to jobs loss.
“Just hope the CBN does not hasten this trajectory as jobs could be lost,” he wrote.
Evaluating the proposed recapitalization and its implication on the economy, he wrote, “In 2004, the Central Bank of Nigeria forced banks to recapitalise, raising their capital base from N2 billion to N25 billion. That year, the exchange rate was around N135/$. With that, you have about $185 million capital base requirements.
“A lot of them might do the loan option. They may offer to the public instruments that will be time-based, which will make them raise the amount they require”
“The CBN has updated that number today, from N25b to N500 billion for the largest banks. At N1, 300/$, you have $385 million. So, we have an effective 2x bump ($385m/$185m) from 2004 to 2024! (During that period, the GDP has increased 3X from $135b to about $420 billion now).
“Ask me if this will make banks give loans to traders and businesses in Oriendu Market in Ovim. No really. But it could be necessary under the present circumstances. The big banks will be fine; if they decide not to pay dividends for 2023, their profits alone can meet whatever the apex bank wants. My concern is the small banks which may disappear. Yes, this year, Access Bank’s parent firm recorded N612 billion profits, Unity Bank was painted red in massive losses.
“Yes, you can call that banking inequality; it is big in Nigeria as the gaps are so much that we have the strong or dying banks, with thin middle. Just hope the CBN does not hasten this trajectory as jobs could be lost. Yet, the apex bank has got to do what it has to do, with Naira yoyoing the USD dollars. So, show up or exit the scene, banks.”
Under the mandate of the CBN in the new dispensation expected from April 1, 2026; the new minimum capital base for commercial banks with national authorisation is now N200 billion, while the new requirement for those with regional authorisation is N50 billion.
Merchant banks would be expected to raise their capital to N50 billion, while the new requirements for non-interest banks with national and regional authorisations are N20 billion and N10 billion, respectively.
The CBN Governor, Olayemi Cardoso, had continuously drummed the new capital regime since November 2023, preparing the industry to service the new economy envisaged by President Bola Tinubu’s administration.
This serves as the reason he has continually warned banks not to spend or pay dividends from the huge forex gains by the industry in the wake of the unification of the foreign exchange windows that have accrued huge earnings for the banks.
The last time the CBN increased the capital base for banks was in 2005, when the current Anambra State Governor, Charles Soludo, as the apex bank chief, ordered the capital base of banks to go up to N25 billion from N2 billion.
Recapitalisation is the process of infusing funds into banks to enable them to meet the mandatory capital adequacy set by a central bank. It is also to stabilise a company’s capital structure and secure shareholders’ funds.
