Bank Recapitalisation: Up to N4 Trillion of Inflow Expected to Meet New Requirement – Agusto & Co

Credit rating agency, Agusto and Co., have projected that banks will expect to inflow up to N4 trillion to meet the Central Bank’s new capital requirements if the apex bank resists pressure to include retained earnings or shareholders’ funds when calculating banks’ new capital.

In its perspectives on the new rule introduced by the CBN, the agency stated that if banks could exert pressure on the CBN to allow shareholders to fund or retain earnings in calculating their capital base, the expected inflow would be less than N1.5 trillion.

• It stated, “Thus, we anticipate a circa ₦4 trillion inflow to meet the new capital regulation. We anticipate significant pressure on the CBN to use the total shareholders’ funds to compute regulatory capital or include retained earnings. Should the retained earnings be used for the computation, we expect a reduction in the capital inflow to circa ₦1.5 trillion.”

The rating agency further stated that the depreciation in the value of the naira coupled with the increase in the number of banks resulting in a breach of the single obligor limit of 20% serves as enough reason for the proposed recapitalisation exercise.

Further, the firm projected a paradigm shift in the banking industry like those witnessed during the last recapitalisation exercise in 2004. It noted that the strong performance of banks, together with the low valuation, could lead to institutional investors flooding the sector.

However, the report did not rule out Mergers and Acquisition (M&A) for banks that could find it difficult to meet the apex bank’s capital requirement.

On March 28, 2024, the Central Bank of Nigeria (CBN) reviewed the capital requirements for Nigeria’s commercial, merchant, and non-interest banks. The CBN asserts that this recapitalization is crucial for strengthening the banks’ stability, solvency, and operational capacity to sustain support for Nigeria’s economic expansion in the face of current macroeconomic trials.

The Central Bank proposed N500 billion capital base for Tier-1 banks, N200 billion for National banks and N50 billion for regional banks.

Also, a lot of bankers have voiced their opposition to the exclusion of retained earnings in meeting the new capital regulation by the Central Bank.