Credit rating agency, Agusto and Co. have forecasted that up to N4 trillion of inflow is expected by banks to meet the Central Bank’s new capital requirements if the apex bank could resist pressure to include retained earnings or shareholders’ funds when calculating banks’ new capital.
In its opinion on the new rule put in place by the Central Bank of Nigeria, the agency noted that an anticipated inflow would be less than N1.5 trillion; If banks were to pressure the central bank into allowing shareholders to finance or maintain their earnings as part of the capital base calculation, according to nairametrics.
It stated, “Thus, we anticipate an inflow of circa ₦4 trillion to meet the new capital regulation. We anticipate significant pressure on the CBN to use the total shareholders’ funds for the computation of regulatory capital or at least to include retained earnings. Should the retained earnings be used for the computation, we expect a reduction in the capital inflow to circa ₦1.5 trillion.”
In addition, the rating agency stated that a decline in the value of the naira coupled with an increase in the number of banks which breached the 20% single obligor limit constitute sufficient grounds for the proposed recapitalisation.
Also, the company projected a paradigm shift in the banking sector, as has been seen, in the last recapitalisation in 2004. It noted that the sector could be flooded by institutional investors due to strong bank performance as well as a weak valuation.
However, the report did not rule out Mergers and Acquisition (M&A) for banks that could find it difficult to meet the apex bank’s capital requirement.
The Central Bank of Nigeria reviewed the capital requirements of Nigeria’s commercial, retail, and noninterest banks on March 28, 2024. To support Nigeria’s economic expansion in the face of current macroeconomic challenges, the CBN declared that this recapitalisation is critical for strengthening the banks’ stability, solvency and operating capacities.
The CBN proposed a capital base of 500 billion for Tier 1 banks, 200 billion for National banks and 50 billion for Regional Banks.
