CBN increases capital base for mega banks to N500 billion, smaller banks N200 billion

 

The Central Bank of Nigeria (CBN) has increased the capital base for commercial banks with international authorization to N500 billion and national banks to N200 billion.

This new financial reform, announced on Thursday, March 28, 2024, mandates substantial increases in the minimum capital base for banks, varying by the scope of their operations.

The latest policy directive specifies that commercial banks with international authorization are now required to rise their capital base to N500 billion.

The CBN’s Acting Director of Corporate Communications, Mrs. Hakama Sidi Ali, confirmed the new policy in Abuja, further detailing that national authorization commercial banks need to meet a N200 billion threshold, while those with regional authorization are expected to achieve a N50 billion capital floor.

The merchant banks are now subject to a N50 billion minimum capital requirement, while non-interest banks with national and regional authorizations will need to bolster their capital to N20 billion and N10 billion respectively.

The CBN also highlighted that all banks are required to meet the minimum capital requirement within 24 months commencing from April 1, 2024, and terminating on March 31, 2026

Here is the breakdown of the CBN directive:

Mega Banks (Operate all over Nigeria and Internationally) – N500 billion

Smaller Commercial Banks (Operate all over the country only) – N200 billion

Regional Banks (Operate in some parts of the country only) – N50 billion

Merchant Banks – N50 billion

Non-interest Banks (Operating all over Nigeria and internationally) – N20 billion

Non-interest Banks (Operate in the country only) – N10 billion

The new capital requirement will consist solely of paid-up capital and share premium. This means Shareholders’ Fund will not be considered.

The development came days after the CBN urged the financial institutions to expedite action on recapitalisation to strengthen the financial system.

The banking industry apex regulator, in a circular addressed to commercial, merchant, and non-interest banks and promoters of proposed banks, which was signed by the CBN Director, Financial Policy and Regulation Department, Mr. Haruna Mustafa, further mandated the banks to meet the new minimum thresholds within 24 months commencing from April 1, 2024, and terminating on March 31, 2026.

The recapitalisation plan which was initially disclosed by the CBN Governor, Mr. Olayemi Cardoso, in his address to the Annual Bankers’ Dinner in November 2023, was to enhance banks’ resilience, solvency, and capacity to continue supporting the growth of the Nigerian economy.

The CBN had urged the banks to consider injecting fresh equity capital through private placements, rights issues and/or offers for subscription; mergers and acquisitions (M&As); and/or upgrade or downgrade of license authorisation to enable them to meet the new capital requirements.

Furthermore, the circular disclosed that the minimum capital shall comprise paid-up capital and share premium only, adding that the new capital base shall not be based on the shareholders’ fund.

The bank added that additional Tier 1 (AT1) capital shall not be eligible for meeting the new capital threshold.

Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio (CAR) requirement applicable to their license authorisation.

The CBN cautioned that in line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularise their positions.

The circular further clarified that the minimum capital requirement for the proposed banks shall be paid-up capital, and shall apply to all new applications for banking licenses submitted after April 1, 2024.

However, the CBN said it would continue to process all pending applications for banking licenses for which a capital deposit had been made and/or an Approval-in-Principle (AIP) had been granted.

The bank added that the promoters of such proposed banks would make up the difference between the capital deposited with the CBN and the new capital requirement no later than March 31, 2026.

Meanwhile, the central bank has directed all banks to submit an implementation plan (clearly indicating the chosen option(s) for meeting the new capital requirement and various activities involved with their timelines) no later than April 30, 2024.

The apex bank also said it would monitor and ensure compliance with the new requirements within the specified timeline.