UBA, Access, 4 Others Beat Benchmark As CBN Raises Commercial Banks Capital Base To N500bn

The Central Bank of Nigeria (CBN) has unveiled new minimum capital requirements for banks, pegging the minimum capital base for commercial banks with international authorisation at N500bn.

Osun Defender reports that the development is is coming days after the CBN urged Nigerian banks to expedite action on the recapitalisation of their capital base to strengthen the financial system.

In a statement released by the apex bank on Thursday reads, “Confirming this in Abuja, on Thursday, Acting Director, Corporate Communications Department, Mrs. Sidi Ali, said the new minimum capital base for commercial banks with national authorisation is now N200bn, while the new requirement for those with regional authoridation is N50bn.”

However, it was learnt that Zenith Bank UBA, Access Bank and 4 other tier-1 banks have already capitalised far beyond this new threshold of N500 billion.

Capital base is a term used by individual investors, publicly traded companies, and banks to refer to a base level of funding.

For individual investors, capital base refers to money used to purchase an initial investment and subsequent purchases of that investment.

Ali revealed that the new minimum capital for merchant banks would be N50bn, while the new requirements for non-interest banks with national and regional authorisations are N20bn and N10bn, respectively.

Recapitalisation is the restructuring of a company’s debt and equity ratio.
The purpose of recapitalisation is to stabilise a company’s capital structure. Some of the reasons a company may consider recapitalisation include a drop in its share price, to defend against a hostile takeover or bankruptcy.

A circular signed by the Director, Financial Policy and Regulation Department, Mr. Haruna Mustafa, to all commercial, merchant, and non-interest banks and promoters of proposed banks emphasized that all banks are required to meet the minimum capital requirement within 24 months commencing from April 1, 2024, and terminating on March 31, 2026.

According to the circular uploaded on the CBN’s website on Thursday, the move, initially disclosed by the CBN Governor, Olayemi Cardoso, in his address to the Annual Bankers’ Dinner in November 2023, was to enhance banks’ resilience, solvency, and capacity to continue supporting the growth of the Nigerian economy.

To enable them to meet the minimum capital requirements, the CBN urged banks to consider injecting fresh equity capital through private placements, rights issues and/or offers for subscription; mergers and acquisitions; and/or upgrade or downgrade of licence authorisation.

Furthermore, the circular disclosed that the minimum capital shall comprise paid-up capital and share premium only.
It stressed that the new capital requirement shall not be based on the Shareholders’ Fund.

“Additional Tier 1 Capital shall not be eligible for meeting the new requirement. Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio requirement applicable to their license authorisation.

“In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularise their position,” it added.
The CBN circular said the minimum capital requirement for proposed banks shall be paid-up capital, adding that the new minimum capital requirement shall apply to all new applications for banking licences submitted after April 1, 2024.

It noted that the CBN would continue to process all pending applications for banking licences for which a capital deposit had been made and/or an Approval-in-Principle had been granted.

However, it said that the promoters of such proposed banks would make up the difference between the capital deposited with the CBN and the new capital requirement not later than March 31, 2026.

Meanwhile, the CBN said all banks are required to submit an implementation plan (clearly indicating the chosen option(s) for meeting the new capital requirement and various activities involved with their timelines) not later than April 30, 2024.

The CBN also disclosed that it would monitor and ensure compliance with the new requirements within the specified timeline.