Recapitalisation: Mergers To Reduce Number Of Nigerian Banks Soon – ARM

With nearly N3 trillion needed for banks in the country to meet the new minimum capital requirement as stipulated by the Central Bank of Nigeria (CBN) analysts have said the recapitalization exercise will see the reduction in the number of banks operating in Nigeria.

The CBN had given a two-year period for banks to meet a new capital base of N500 billion for international operations, N200 billion for national operations and N50 billion for regional operations and merchant banking licence.

In 2004, the Nigerian central bank last raised capital requirements, sparking a wave of mergers that reduced the number of commercial lenders from 89 to 25. Similar outcomes are anticipated with the current capital increase.

Currently, out of the 12 listed banks, only the Nigerian subsidiary of pan-African lender, Ecobank Nigeria Ltd does not have to raise capital to meet the new requirement. All other lenders have to seek new investors or ask existing shareholders to purchase fresh stock. There are a total of 25 commercial lenders in the country.

According to a breakdown by ARM, United Bank for Africa Plc faces the largest capital shortfall of N384 billion, while Stanbic IBTC, the Nigerian arm of South Africa’s Standard Bank Group, has the smallest gap at N90 billion.

According to Asset & Resource Management Co. (ARM) banking analyst Oyinkansola Aregbesola, there will be more marriages in the form of mergers and acquisitions for those who are not able to raise the additional capital required. “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.

Professor of Law and developmental economist Tayo Bello, whilst noting that the recapitalization exercise for banks is already long overdue, considering the devaluation of the naira noted that many banks will not be able to survive the recapitalisation.

“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.”

Rating agency Moody’s Investor Service noted that the new capital requirement will lead to a consolidation in the Nigerian banking sector.

saying “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 said, adding that the enhanced capital requirements are credit positive for 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.”