In March 2024, the Central Bank of Nigeria (CBN) issued a circular announcing a new recapitalization policy for commercial, merchant, and non-interest banks in Nigeria. This policy, effective from April 1, 2026, mandates that banks increase their minimum capital requirements to enhance their financial stability and resilience.
The directive requires banks to raise the necessary funds within a 24-month period, from April 1, 2024, to March 31, 2026. This timeline also applies to prospective banks seeking licenses.
The CBN’s recapitalization policy aims to strengthen the capital base of banks, ensuring they can absorb losses and continue lending to support economic growth. The policy stipulates that the minimum capital requirement for banks will consist solely of paid-up capital and share premium. Paid-up capital refers to the actual funds contributed by shareholders, while share premium represents additional amounts paid by investors for shares above their face value.
To meet these new capital requirements, the CBN has outlined three options for banks: injection of funds through private placements, rights issues, and offers for subscription; mergers and acquisitions; and the upgrade or downgrade of license authorization. Banks are required to submit their implementation plans to the CBN by the end of April 2024, clearly indicating their chosen option and the activities involved in their timelines.
The need for this recapitalization policy arises from several factors, including compliance with international banking standards such as the Basel norms, which require banks to maintain a certain level of capital reserves. These norms are designed to enhance the resilience of banks by ensuring they have sufficient capital to cover potential losses. Additionally, the policy addresses challenges posed by high levels of non-performing assets (NPAs), which can erode a bank’s capital base and hinder its ability to lend.
The CBN’s decision to implement this policy is also influenced by the devaluation of the Naira, the banking industry’s struggles to support other economic sectors, and the decline in foreign exchange reserves.
Here are the detailed requirements for various types of banks:
Commercial Banks:
National Commercial Banks: ₦200 billion, Regional Commercial Banks: ₦50 billion, International Commercial Banks: ₦500 billion, Merchant Banks: ₦50 billion
Non-Interest Banks:, National Non-Interest Banks: ₦20 billion, Regional Non-Interest Banks: ₦10 billion
Microfinance Banks: Unit Microfinance Banks: ₦200 million, State Microfinance Banks: ₦1 billion, National Microfinance Banks: ₦5 billion
However, several banks are making significant progress towards meeting these requirements. For instance, Zenith Bank, GTCO Bank, Access Bank, and First Bank are among the leading banks working diligently to bridge their funding gaps.
Various measures have been adopted by banks to meet this new recapitalization requirements set by CBN aimed at strengthening their capital base and ensuring compliance with regulatory standards.
One of the key approaches being adopted is conducting international roadshows to attract foreign investors. These roadshows are designed to showcase the banks’ potential and secure the necessary capital from international markets. By presenting their growth prospects and financial stability, banks aim to draw significant investments from abroad.
Some banks are issuing new shares to raise fresh equity. Several Nigerian banks have issued new shares in 2024 to raise fresh equity as part of their recapitalization efforts.
Zenith Bank embarked on a significant capital-raising initiative to meet the new recapitalization requirements set by the Central Bank of Nigeria (CBN). The bank launched a hybrid rights issue and public offer aimed at raising approximately ₦290 billion.
Zenith Bank offered 5.233 billion ordinary shares at ₦36 per share to existing shareholders through a rights issue. These shares were pre-allotted on the basis of one new ordinary share for every six existing shares held as of July 24, 2024. Additionally, the bank offered 2.767 billion ordinary shares to the public at ₦36.50 per share.
The subscription turnup for both the rights issue and public offer was strong, reflecting high confidence from both existing shareholders and new investors. This capital raise is intended to bolster Zenith Bank’s capital base, support its expansion efforts, and enhance its information technology infrastructure
Access Bank, through its parent company Access Holdings Plc, initiated a significant capital-raising effort to meet the new recapitalization requirements set by the Central Bank of Nigeria (CBN). The bank launched a rights issue to raise approximately ₦351 billion.
Access Holdings offered 17.772 billion ordinary shares at ₦19.75 per share to existing shareholders. This rights issue was structured on the basis of one new ordinary share for every two existing shares held as of June 7, 2024. The offer opened on July 8, 2024, and closed on August 14, 2024.
The subscription turnup for the rights issue was strong, with significant interest from both existing shareholders and new investors. This capital raise is intended to bolster Access Bank’s capital base, support its expansion plans, and enhance its working capital requirements, including funding for its banking and non-banking subsidiaries.
Guaranty Trust Holding Company Plc (GTCO) launched a significant public offer to raise fresh equity as part of its efforts to meet the new recapitalization requirements. The bank aimed to raise ₦400.5 billion through this initiative.
GTCO offered 9 billion ordinary shares at ₦44.50 per share. The offer was structured to attract both existing shareholders and new investors, with the application list opened on July 15, 2024, and closed on August 12, 202. The proceeds from this public offer are intended to recapitalize GTCO’s principal banking subsidiary, Guaranty Trust Bank Limited (GTBank Nigeria), and support group-wide growth and expansion initiatives.
The subscription turnup for the public offer was strong, reflecting high confidence from both existing shareholders and new investors. This capital raise is part of GTCO’s broader strategy to pivot the organization for transformational growth across its banking and non-banking businesses.
Mergers and acquisitions (M&A) are being explored as a way to consolidate resources and meet the capital requirements. By merging with or acquiring other banks, institutions can pool their capital and strengthen their financial positions. This strategy allows banks to achieve economies of scale and enhance their market presence.
Banks are also leveraging their relationships with suppliers and contractors to raise additional capital. This involves negotiating better terms and securing investments from these stakeholders, thereby enhancing their financial position. By fostering strong partnerships, these banks have tap into new sources of funding.
Setting aggressive internal targets for staff to drive performance and profitability is another strategy being implemented. By improving their financial performance, banks have generated more retained earnings to meet the capital requirements. This approach focuses on enhancing operational efficiency and boosting profitability through targeted initiatives.
High-net-worth individuals (HNIs) and institutional investors are being tapped as key sources of substantial funds needed for recapitalization. Banks are reaching out to these investors to raise capital, recognizing their potential to provide significant financial support. Engaging with HNIs and institutional investors allows banks to access large pools of capital.
