Professor Adegbemi Onakoya, an internationally certified expert in quality management and business transformation, has said that all existing Nigerian banks are below the new CBN recapitalization threshold and need to raise a collective N4 trillion to comply.
Prof. Onakoya shared this insight on Saturday during the Nairametrics Economic Outlook webinar, which focused on the Central Bank of Nigeria (CBN) recent policies and their impact on the economy.
Prof. Onakoya explained that the CBN’s recapitalization circular defines the minimum capital requirement as consisting only of paid-up capital and share premium, excluding retained earnings and Tier 1 capital. Consequently, banks need to secure additional funds through the stock market, mergers and acquisitions, rights issues, and private listings to meet this threshold.
- “The eligible capital is only the paid-up capital and share premium.
- “It excludes the retained earnings. It excludes other Tier 1 capital, in terms of capital reserves and preferred stocks.
- “What it means is that all the banks are currently short of this new threshold and would be requiring about N4 trillion capital to be raised either from the stock market, or from mergers and acquisitions, or from rights issues, or from private listings.
- “In effect, more money must go into the banks.” The professor explained.
Sharing more insight, Prof. Onakoya expressed his belief that the bank recapitalization initiative by the Central Bank of Nigeria will fortify Nigerian banks against external and domestic shocks, particularly in relation to the Naira, which appeared to have weakened, and will enhance the financial system’s stability
CBN’s regulatory discrepancies on minimum capital requirement and capital adequacy ratio
Prof. Onakoya highlighted a discrepancy in the Central Bank of Nigeria’s (CBN) regulations regarding minimum capital requirements and the capital adequacy ratio (CAR) for Nigerian banks.
He noted that, unlike the minimum capital requirement that accepts paid-up capital and excludes retained earnings from eligible capital, the CAR calculation includes both paid-up capital and retained earnings, with international banks pegged at 15% and other banks at 10%.
However, he expressed optimism that the CBN would soon issue a circular to harmonize these contradictory regulations.
- “If we allow retained earnings to be part of eligible capital in the capital adequacy ratio and would not allow that in the current minimum capital requirement, there seems to be contradiction there.
- “But I trust the CBN to issue a circular to normalize the position soon,” Onakoya said.
What you should know
The Central Bank of Nigeria (CBN) recently raised the minimum capital requirements for commercial banks, with the amount varying according to their operational scope.
This move aims to fortify Nigerian banks against domestic and external shocks and to improve the financial system’s stability.
Under the new regulations, eligible capital will solely comprise paid-up capital and share premium, excluding Shareholders’ Fund and Tier 1 capital.
Banks must meet these minimum capital requirements within a 24-month period, starting from April 1, 2024, and ending on March 31, 2026.
Here’s the breakdown of the minimum capital base for commercial banks according to their scope of operations:
- Mega Banks (Operate all over Nigeria and Internationally) – N500 billion
- Smaller Commercial Banks (Operate all over the country only) – N200 billion
- Regional Banks (Operate in some parts of the country only) – N50 billion
- Merchant Banks – N50 billion
- Non-interest Banks (Operating all over Nigeria and internationally) – N20 billion
- Non-interest Banks (Operate in the country only) – N10 billion
