Another round of banks’ recapitalisation

Another round of bank recapitalisation is here and for the next two years between April 1, 2024 and March 31, 2026, the nation’s 25 commercial and six merchant banks are expected to shore up their minimum share capital by as much as 100 per cent, in some categories. The CBN said all international banks should move their capital to a minimum of N500 billion; national banks up to a minimum of N200 billion; regional banks (N50 billion); merchant banks (N50 billion) and N20 billion for non-interest banks operating nationally and N10 billion for those operating regionally.

To achieve this, the banks will adopt one or a combination of these three options: inject fresh equity capital through private placement, rights issue and/or offer for subscription; mergers and acquisition and/or upgrade or downgrade of licence of authorisation (meaning downgrade from international bank to national or regional or reverse). I can bet that the last option would be the least popular.

This wave of recapitalisation is a bit different from that of Charles Soludo implemented between July 2004 and December 31, 2005 in which all the banks were forced to recapitalise to a minimum of N25 billion. It shrunk the industry from 89 to 24 banks. This time, the banks have different capital requirements, depending on their type of licence.

Other key differences between the two programs are: (i) Soludo’s came with a huge surprise as the operators had no inkling of the announcement before it was made, but Yemi Cardoso had in November given a hint of the review, thus preparing the banks for the Thursday announcement; (ii) Shareholders’ funds were included as part of the N25 billion share capital in 2004, but excluded in the current review, indicating that retained earnings will not be counted as part of their share capital this time (iii) Soludo gave a shorter timeframe of 18 months, unlike Cardoso’s 24-month deadline.

I was in the thick of the flurry of activities 20 years ago, going on roadshows across the country with colleagues to help raise money for the bank I was working for. It was fun and exciting. Eventually, the bank merged with four others to form a brand-new institution known as Sterling Bank. This time around, I would be watching the drama from outside, having retired 11 years ago. But I still take a lot of interest in the industry.

I am particularly gratified to see Nigerian-owned banks spreading across Africa, helping businesses and households meet their financial needs. When Prof. Soludo announced the 2004 recapitalisation programme, there were just a handful of subsidiaries of Nigerian-owned banks in other African countries, while only First Bank (London), Union Bank (London) and UBA (New York) had a presence outside the continent. The growth is emblematic of our preeminence in the continent. I believe in Nigeria and what our private-sector people can do.

There will be very few or no mergers and acquisitions this time because, as a CEO told me, ‘’we don’t have many candidates for that this time around’’. But watching from outside, I expect that Polaris, Union and Unity will receive a lot of overtures for mergers. The CBN has asked the banks to file their implementation plan, clearly indicating the preferred options for meeting the new capital requirements and the various activities and their timelines before the end of April.

Among the top five, Access Holdings, the parent company of Access Bank, appears the most prepared for this recapitalization, in spite of the recent devastating death of its CEO, Herbert Wigwe. Last Thursday – the day the CBN announced the new capital review – Access Holdings unveiled plans to raise $1.5 billion through the issuance of various financial instruments such as ordinary shares, preference shares and others. It will also raise N365 billion through the Rights Issue of Ordinary shares, the proceeds of which would combine with its existing N250 billion paid-up capital, to exceed the new regulatory limit.

Access Holdings’ shareholders will meet in Lagos on Friday, April 19 to consider and approve these plans. In addition, they would also be asked to formally approve the appointment of Aigboje Aig-Imoukhuede, who was named chairman of the Board two weeks ago, as its non-executive director. Other lenders would be equally busy, Zenith most of all. While others would be engrossed in capital raising only, Zenith will combine that with transiting into a holding company structure – a task other comparator banks had completed over two years ago.

It is going to be a herculean task juggling the two. The other three Tier One banks (GT, UBA and First Bank) are yet to announce their recapitalisation plans and date for annual general meetings, but it is clear from their current position that they too would be going for upwards of N250 billion each in additional capital. The capital market and institutional investors would be quite busy, but with inflation at over 30 percent and disposal income severely depressed, ordinary Nigerians would be shut out completely.

Leaning on its 2004 experience, the CBN expects that a highly capitalized banking industry should be in a position to not only withstand the prevailing macroeconomic challenges and headwinds but also to enhance its resilience, solvency and ‘’capacity to continue to support the growth of the Nigerian economy’’.