Fitch Ratings has warned that Nigeria’s tier-3 banks may have to pursue mergers, acquisitions, or licence downgrades to meet the Central Bank of Nigeria’s new capital requirements.
In its report released on Wednesday, the agency noted that while first-tier and tier-2 banks have made significant progress in raising fresh capital, tier-3 banks have lagged, making consolidation or licence adjustments a more probable route to compliance.
“M&A activity and licence downgrades remain more likely among third-tier banks,” it noted.
In March 2024, the CBN implemented a major increase in paid-in capital requirements for commercial, merchant, and non-interest banks across Nigeria.
The new rule, which raises the capital threshold, aims to strengthen financial stability and ensure banks can withstand economic shocks.
To comply, banks can either raise fresh equity, merge with other institutions, or downgrade their licences.
While major banks have secured funds through shareholder support and capital markets, tier-3 banks have struggled to attract sufficient investments.
While larger banks have secured capital to maintain their licences, tier-3 banks have struggled to keep up.
Fitch’s report revealed that many banks have yet to obtain shareholder approvals or finalize their capital-raising strategies.
Union Bank of Nigeria is still navigating the recapitalization process and remains in breach of the CBN’s 10% Capital Adequacy Ratio requirement.
Meanwhile, Wema Bank has secured shareholder approval to raise capital for retaining its national banking licence and plans to begin fundraising by April 2025.
Coronation Merchant Bank has obtained board approval for capital raising, though its next steps remain uncertain.
Fitch cautioned that without swift action to secure fresh capital, these banks may be forced to merge with stronger institutions or downgrade their licences to comply with CBN regulations.
While smaller banks face challenges, major financial institutions have advanced in meeting the new capital requirements.
Access Bank and Zenith Bank have met the N500 billion capital requirement for international banking licences.
Meanwhile, First HoldCo, UBA, and GTCO are raising capital in phases, with some awaiting final regulatory approval for recent rights issues.
Fidelity Bank and FCMB Group, both tier-2 lenders, have completed initial capital raising but must secure additional funds to retain their international banking licences.
