The Central Bank of Nigeria has announced new minimum capital requirements for banks, setting the minimum capital base for commercial banks with international authorization at N500bn.
This comes shortly after the central bank encouraged Nigerian banks to promptly recapitalize their capital base to strengthen the financial system.
This was stated in a release by the central bank on Thursday.
The statement explains, “Confirming this in Abuja, on Thursday, Acting Director, Corporate Communications Department, Mrs. Sidi Ali, said the new minimum capital base for commercial banks with national authorization is now N200bn, while the new requirement for those with regional authorization is N50bn.”
Capital base is a term used by individual investors, publicly traded companies, and banks to refer to a base level of funding.
For individual investors, capital base refers to money used to purchase an initial investment and subsequent purchases of that investment.
Ali also revealed that the new minimum capital for merchant banks would be N50bn, while the new requirements for non-interest banks with national and regional authorizations are N20bn and N10bn, respectively.
Recapitalization is the restructuring of a company’s debt and equity ratio.
The purpose of recapitalization is to stabilize a company’s capital structure. Some of the reasons a company may consider recapitalization include a drop in its share price, to defend against a hostile takeover or bankruptcy.
A circular signed by the Director, Financial Policy and Regulation Department, Mr. Haruna Mustafa, to all commercial, merchant, and non-interest banks and promoters of proposed banks stressed that all banks are required to meet the minimum capital requirement within 24 months starting from April 1, 2024, and ending on March 31, 2026.
According to the circular posted on the CBN’s website on Thursday, the action, first mentioned by the CBN Governor, Olayemi Cardoso, during his speech at the Annual Bankers’ Dinner in November 2023, aims to improve banks’ resilience, solvency, and their ability to continue supporting the growth of the Nigerian economy.
To help them meet the minimum capital requirements, the CBN advised banks to consider injecting fresh equity capital through private placements, rights issues and/or offers for subscription; mergers and acquisitions; and/or upgrade or downgrade of license authorization.
Additionally, the circular indicated that the minimum capital shall consist of paid-up capital and share premium only.
It emphasized that the new capital requirement shall not be determined by the Shareholders’ Fund.
“Additional Tier 1 Capital shall not be eligible for meeting the new requirement. Despite the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio requirement applicable to their license authorization.
“In accordance with existing regulations, banks that fail to meet the CAR requirement will be required to inject fresh capital to rectify their position,” it added.
The CBN circular stated that new banks must have a certain amount of capital as of April 1, 2024.
It mentioned that the CBN will continue to review pending applications for bank licenses if a deposit has been made or approval has been given.
However, it said the promoters of such proposed banks must fill the gap between the deposited capital and the new requirement by March 31, 2026.
Meanwhile, the CBN said all banks need to submit a plan by April 30, 2024, outlining how they intend to meet the new capital requirement.
The CBN also revealed that it will ensure that the new requirements are followed within the specified deadline.
