- Policy may create N370 billion capital shortfall, compel UBA, Zenith to restructure as Tier-1 banks risk fresh capital beef-up
- Declares ring-fencing plan threatens cross-sell model, raises compliance burden for banks, fintechs
James Emejo in Abuja
Leading investment research firm, Zrosk Investment Management, has cautioned that the Central Bank of Nigeria (CBN)’s proposed overhaul of the Financial Holding Company (HoldCo) framework could trigger fresh capital raising by major banking groups, force structural reorganisation by some lenders and significantly alter the economics of financial services industry.
In its assessment of the apex bank’s recently released exposure drafts on revised HoldCo regulations and new ring-fencing guidelines, the firm described the proposed 20 per cent capital buffer requirement and mandatory HoldCo formation for certain institutions as the most consequential regulatory changes to the sector in over a decade.
Zrosk is a Lagos-based Nigerian investment management and alternative investments firm that deploys capital across public equities, private credit, and early-stage venture investments.
The firm describes itself as a research-driven investment manager focused on long-term capital growth through disciplined investing and risk management.
According to the firm, the proposed rules, currently open for stakeholder comments, could leave all four existing Tier-1 banking HoldCos — GTCO, Access Holdings, First HoldCo and Stanbic IBTC Holdings — below the new capital threshold, creating an estimated aggregate capital shortfall of about N370 billion.
The investment firm noted that under the current framework introduced in 2014, HoldCos are only required to maintain paid-in capital equivalent to the aggregate capital of their subsidiaries.
However, the revised draft raises the threshold substantially by requiring HoldCos to maintain capital that exceeds the combined paid-in capital of all subsidiaries by at least 20 per cent.
Zrosk stated that the proposed requirement automatically widens compliance gaps following every regulatory recapitalisation exercise because increases in subsidiary capital would necessitate corresponding increases at the HoldCo level.
Its analysis showed that Access Holdings faces the largest estimated shortfall of about N120 billion under the proposed framework, followed by GTCO N103.7 billion, First HoldCo N90 billion and Stanbic IBTC Holdings N11.8 billion.
The firm observed that while GTCO, Access and Stanbic currently comply with existing rules, they would all require additional capital under the revised regime.
First HoldCo, according to the report, is already under pressure as it remains the only major HoldCo currently in breach of the existing capital requirement, although recent capital injections have helped improve its position.
Beyond the capital implications, Zrosk highlighted another major provision requiring institutions that own multiple closely linked financial entities to establish a non-operating HoldCo structure.
The report noted that the draft uses mandatory language, leaving little room for discretion and effectively compelling Zenith Bank and United Bank for Africa (UBA) to restructure.
While describing the move as operationally demanding, Zrosk argued that it could unlock long-term value, particularly for UBA, by creating opportunities for clearer segment reporting, subsidiary listings and strategic divestments.
The report stated that the proposed framework would also require foreign subsidiaries currently held directly under Nigerian banking entities to be transferred to HoldCo structures.
This would affect major lenders including GTCO, Access Holdings, Zenith Bank and UBA, whose extensive African and international operations are presently housed under their Nigerian banking subsidiaries.
According to Zrosk, implementing such restructuring would require regulatory approvals across multiple jurisdictions and could involve tax, foreign exchange and legal complexities.
The firm further expressed concern over provisions introducing mandatory customer re-onboarding between related entities.
Under the proposed ring-fencing regime, customers referred from one entity to another within the same group would be required to undergo fresh Know-Your-Customer (KYC) procedures and provide separate consent before accessing services.
Zrosk argued that the requirement strikes at the core commercial rationale behind integrated financial groups, which rely on leveraging existing customer relationships across banking, payments, pensions, insurance and asset management businesses.
The report also pointed to potential contradictions in the proposed treatment of technology infrastructure, explaining that while one section of the draft permits ICT services to be shared among related entities subject to regulatory approval, another provision prohibits entities from relying on another group’s technology infrastructure for customer transaction processing.
The firm stressed that compliance with such requirements could necessitate costly technology overhauls and duplication of systems across financial groups.
The report added that the proposed ring-fencing rules would extend beyond banks to fintech groups and other CBN-licensed entities operating multiple businesses under a common ownership structure.
Earlier, THISDAY reported that the revised HoldCo framework seeks to strengthen governance and reduce excessive influence by parent companies over regulated subsidiaries.
Among other provisions, the CBN proposed barring HoldCos from participating in lending decisions, interfering in day-to-day operations of subsidiaries or compelling them to take business directives from parent companies.
The apex bank also proposed that HoldCos maintain at least a 51 per cent ownership stake in subsidiaries and ensure arm’s-length dealings across group entities as part of efforts to strengthen oversight, accountability and risk management within increasingly complex financial groups.
While acknowledging that the proposed reforms are aimed at enhancing financial stability and reducing contagion risks within banking groups, Zrosk cautioned that the cumulative impact could raise compliance costs, reduce capital efficiency and dilute shareholder value if implemented in their current form.
Nonetheless, the firm maintained that the estimated capital shortfall across major banking groups, though substantial, is unlikely to pose a systemic threat to the industry.
On the mandatory HoldCo formation, Zrosk said, “This is an unconditional obligation that requires the promoters of closely linked entities to establish a non-operating HoldCo. The draft uses the word “shall” incorporate, which means there is no discretion. The only alternative is to merge all the entities into one and surrender duplicate licences. This directly forces Zenith and UBA to restructure.
“Although we think this could be a value unlock for UBA, the HoldCo structure is a potential catalyst for medium-term value realisation. A HoldCo structure creates the optionality to surface that value through subsidiary listings, partial divestments, and cleaner segment disclosure. The forced restructuring, while operationally heavy, could be the event that finally unlocks what UBA’s African network is worth.”
Commenting on the foreign subsidiary routing, the firm stated, “Currently, all Tier 1 banks with a HoldCo structure hold their African and UK banking subsidiaries under the Nigerian bank entity. GTBank Nigeria owns GTBank Ghana, Kenya, UK, etc. Access Bank Nigeria owns its 20+ African subsidiaries.
“The new draft states that all foreign subsidiaries must sit under the HoldCo, not the bank, or alternatively, an intermediate HoldCo may be created within the HoldCo structure to hold the foreign subsidiaries.
“The restructuring requires regulatory approvals in every host jurisdiction, potential capital gains tax on asset transfers, and FX settlement considerations. Existing HoldCos have six months from the effective date to notify the CBN of their chosen structure.”
It further stated that the “Revised guidelines introduce a new solo capital adequacy requirement at the HoldCo level. The HoldCo must comply with the CAR of its most significant subsidiary on both a solo and consolidated basis. For all existing Tier 1 HoldCos, that subsidiary is the Nigerian bank entity, not the African operations, which carries a minimum CAR of 15% under the CBN’s Basel II framework.
“The implementation problem is fundamental. A financial holding company’s balance sheet is not a bank’s balance sheet. Its assets are equity investments in subsidiaries, intercompany receivables, and cash.
“There are no loans, no trading book, and no off-balance-sheet exposures none of the risk assets that populate a standard RWA calculation. We hope to get more clarity on the implementation.”
Among other things, it added, “The revised guidelines tighten the interlocking directorship rules on two fronts. The cross-directorship cap is reduced from 30% to 20% of the subsidiary board.
“More significantly, a new absolute limit is introduced: a HoldCo director may sit on a maximum of one subsidiary board. HoldCo plus one subsidiary.”
