Victor EzejaCBN gives 25 banks 24 months to bolster their capital base with effect from April 1, 2024.
The Central Bank of Nigeria (CBN) has mandated Commercial, Merchant and Non-interest banks to increase their capital bases to enhance their resilience, solvency, and capacity to support the country’s economy in the midst of domestic and external macroeconomic challenges.
This financial reform requires banks to have a minimum capital base that increases significantly depending on the size and category of the bank.
This was confirmed in a circular to all commercial, merchant, and non-interest banks signed by Haruna Mustafa, Director, Financial Policy and Regulation Department, CBN, released on Thursday, March 28, 2024.
According to the circular, commercial banks with international authorisation are now required to have N500 billion, while national banks is now N200 billion.
It also said that commercial banks with regional authorisation will now be N50 billion.
Part of the circular read: “The prevailing macroeconomic challenges and headwinds occasioned by external and domestic shocks have underscored the need for banks to raise and maintain adequate capital to enhance their resilience, solvency and capacity to continue to support the growth of the Nigerian economy.
“Consequently, in furtherance of its statutory responsibility to promote a safe, sound and stable banking system and in line with Section 9 of the Banks and Other Financial Institutions Act (BOFIA) 2020, the Central Bank of Nigeria (CBN) hereby announces an upward review of the minimum capital requirements for commercial, merchant and non-interest banks in Nigeria.”
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The circular said that other categories of banks like merchant banks with national authorisation is expected to have a minimum capital base of N50 billion while Non-Interest banks with national and regional authorisations will need to raise their capital to N20 billion and N10 billion respectively.
The bank said this is expected to be done within 24 months with effect from April 1, 2024, to March 31, 2026.
See the breakdown below:
How Banks Can Achieve the Recapitalisation
The CBN further advised banks on how to achieve the minimum capital base increase. It urged banks to consider injecting fresh equity capital through private placements, rights issues, and/or offers for subscription; to pursue Mergers and Acquisitions (M&As); and/or to consider upgrading or downgrading their license authorisation.
What Constitutes Minimum Capital
For Existing Banks
The circular explained that for existing banks, the minimum capital shall comprise paid-up capital and share premium only, emphasising that it would not be based on Shareholders’ Fund.
“All banks are required to meet the minimum capital requirement within a period of 24 months commencing from April 1, 2024 and terminating on March 31, 2026.
“Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio (CAR) requirement applicable to their license authorization.
“In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularize their position,” the circular stated.
For Proposed Banks
The CBN also stipulated capital requirements for upcoming banks.
It said that the new minimum capital requirement shall be applicable to all new applications for banking license submitted after April 1, 2024.
“The CBN shall continue to process all pending applications for banking license for which capital deposit had been made and/or Approval-in-Principle (AIP) had been granted.
“However, the promoters of such proposed banks shall make up the difference between the capital deposited with the new capital requirement not later than March 31, 2026,” it added.
According to the circular, the CBN requires all banks to submit to its Director, Banking Supervision Department, an implementation plan, clearly indicating their chosen options for meeting the new capital requirement and detailing the various activities and their timelines, by no later than April 30, 2024.
“The CBN will monitor and ensure compliance with the new requirements within the specified timeline above,” the circular added.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
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