Bankers oppose removal of retained earnings in CBN terms

Alex Omenye
Alex Omenye

Bankers are expressing their disapproval of the Central Bank’s decision to exclude retained earnings from the calculation of share capital in its recent recapitalization terms.

The Central Bank introduced new capital thresholds for Nigerian banks, mandating international, national, and regional banks to maintain minimum share capital of N500 billion, N200 billion, and N50 billion, respectively.

However, retained earnings were omitted from the definition of share capital, with only ordinary share capital and share premium being considered.

Retained earnings, which represent profits reinvested in the bank rather than distributed as dividends, are traditionally recognized as part of a company’s equity in accounting terms.

Bankers argue that excluding retained earnings fails to recognize their actual value and contradicts standard practices in assessing a company’s capital structure.

Additionally, while the Central Bank encourages banks to retain earnings to strengthen their capital base, bankers believe that these earnings should still be counted as part of their capital.

They argue that recognizing retained earnings could alleviate the need for additional capital raising, especially for the largest banks in the country, which collectively possess significant retained earnings.

The Central Bank’s directive, which prioritizes direct capital injections into banks over accounting entries, suggests a focus on ensuring banks meet the new capital requirements rather than relying solely on internal resources. While mergers and acquisitions are permitted, it indicates that some banks may struggle to meet the new thresholds.

The Central Bank’s rationale for raising capital is to foster the emergence of stronger banks capable of supporting the growth of the national economy. Larger banks with substantial capital bases are seen as vital for providing significant levels of credit, which is essential for economic growth and development, aligning with the goals of the Tinubu administration’s Renewed Hope agenda.

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