LAGOS, Nigeria (VOICE OF NAIJA)–Following the CBN recapitalization policy, analysts anticipate a wave of mergers in Nigeria’s banking sector as lenders scramble to meet the Central Bank of Nigeria’s (CBN) new minimum capital requirements, totaling nearly N3 trillion.
The CBN’s directive mandates banks to strengthen their capital base, with N500 billion required for international operations, N200 billion for national operations, and N50 billion for regional operations and merchant banking licences, within a two-year period.
Similar to the consolidation witnessed in 2004, where the number of commercial lenders dropped from 89 to 25, analysts foresee a reduction in the current 25 commercial lenders.
Amongst the 12 listed banks, Ecobank Nigeria Ltd’s Nigerian subsidiary stands as the sole exception exempt from raising additional capital to meet the new requirements.
The remaining banks must either attract new investors or prompt existing shareholders to purchase additional shares.
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This leaves a total of 25 commercial lenders in Nigeria subject to the capital mandate.
The asset and resource management (ARM) analysis reveals that United Bank for Africa Plc faces the largest capital deficit of N384 billion, while Stanbic IBTC has the smallest gap at N90 billion.
According to a banking analyst at ARM, Oyinkansola Aregbesola there will be an increase in mergers and acquisitions as a solution for those unable to raise the necessary additional capital.
“We will definitely see a reduction in the number of banks. The tier two banks and the smaller entities will likely consider mergers if they can’t individually raise the capital on their own,” she said.
A developmental economist and law expert, Professor Tayo Bello, highlights the overdue nature of the bank recapitalization exercise, especially in light of the naira’s devaluation. He warns that many banks may not withstand the recapitalization process.
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“Not all of them will be able to cross the hurdle. When Soludo brought up the recapitalisation exercise then, I think the number of banks in the economy was more than 50 then, before they were reduced to 20. So, this one, I can predict maybe they will come down to 15 or above that.”
A rating agency, Moody’s Investor Service predicts that the new capital requirement will drive consolidation within the Nigerian banking sector. “We expect that the new regulations will drive significant consolidation within the sector, particularly where it is not feasible for banks to raise the required capital.
“The exclusion of retained earnings from qualifying capital may complicate recapitalization plans, “ The rating agency emphasised that the enhanced capital requirements represent a positive development for the creditworthiness of the banking sector.
It furthered that banks “will benefit from a stronger balance sheet and the ability to grow their loan books while absorbing any unexpected credit loss.”